Pitch Best Deal 2021: Hillhouse Capital – Philips Domestic Appliances
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De beste deal van het jaar is meer dan het hoogste cijfertje in de krant en de kunst van het dealmaken is meer dan het opstellen van een contract. De Awards voor de beste deal zou dus niet alleen op de prijs van de deal gebaseerd moeten zijn, maar vooral op de – toegevoegde – waarde voor een bedrijf en de exit.
Name of the deal: Hillhouse Capital acquires the Domestic Appliances business of Philips
Date: 25-03-2021
Published value: 4.4 billion (€)
Buyer(s): Hillhouse Capital
Target: Domestic Appliances business of Philips
Seller: Royal Philips N.V.
Involved firms and advisors buy side:
EY (Consultancy, Tax Advisory and Financial Due Diligence), LinkLaters (Legal Advisory Corporate M&A)
Involved firms and advisors target:
JP Morgan, Goldman Sachs (M&A Advisory), PwC & De Brauw Blackstone Westbroek (Tax Advisory), Deloitte (Financial Due Diligence), De Brauw Blackstone Westbroek (Legal Advisory Corporate M&A)
Involved firms and advisors sell side:
JP Morgan, Goldman Sachs (M&A Advisory), PwC & De Brauw Blackstone Westbroek (Tax Advisory), Deloitte (Financial Due Diligence), De Brauw Blackstone Westbroek (Legal Advisory Corporate M&A)
Pitch
Brief description deal / Deal outline
Royal Philips has signed an agreement to sell its Domestic Appliances business, a global leader with EUR 2.2 billion sales in 2020 in kitchen, coffee, garment care and home care appliances, to Hillhouse Capital, a global investment firm focused on helping companies achieve long-term sustainable growth through digital innovation and enablement. The Domestic Appliances business, which will remain headquartered in the Netherlands, is active in more than 100 countries, and has a global innovation, manufacturing, and commercial footprint. Its successful products include the Airfryer, Fully Automatic Espresso Machine with LatteGo, Perfect Care Elite steam generator, Air Purifier and SpeedPro Max vacuum cleaner. The business employs approximately 7,000 employees globally. The transaction values the Domestic Appliances business at an enterprise value of approximately EUR 3.7 billion. Upon completion of the transaction, Royal Philips expects to receive cash proceeds after tax and transaction-related costs of approximately EUR 3 billion. Additionally, Royal
Philips and Domestic Appliances will enter into an exclusive brand license agreement to use the Philips brand and certain of Royal Philips’ other domestic appliances brands for manufacturing, sales, and marketing of Domestic Appliances products globally for a period of 15 years, which is renewable subject to the terms of the brand license agreement. The annual payments over this period represent an estimated net present value of approximately EUR 0.7billion, resulting in a total deal value of approximately EUR 4.4 billion. The transaction is expected to be completed in the third quarter of 2021, subject to customary closing condition including the relevant regulatory approvals.
Why should this deal win the Award for Best Deal 2021?
This is a win-win situation for both Royal Philips and Hillhouse Capital.
Royal Philips: The deal paves the way for further expansion of Philips in health technology. Philips has found a new home for the Domestic Appliances business to further expand on its market leadership, strong brand and pipeline of new innovations,” said Frans van Houten, CEO of Royal Philips. “This transaction concludes our major divestments. Going forward, our focus is on extending our leadership in health technology and continuing our transformation into a solutions company supporting professional healthcare customers achieve the Quadruple Aim and consumers with their personal health.
Hillhouse Capital: “We look forward to joining forces with Philips to expand into new markets and capture more growth opportunities globally,” said LeiZhang, Founder and CEO of Hillhouse Capital. Hillhouse is aligned with Philips’ mission to bring high quality products to support healthy and fulfilling lifestyles for consumers across the globe.
The sale of Domestic Appliances by Philips to Hillhouse Capital should win Best Deal 2021 for several reasons. First, the sale attracted strong interests from various strategic parties and private equity sponsors, resulting in a very competitive auction process. The Domestic Appliances business of Philips is a leading global player in domestic appliances, with iconic brands, strong product portfolio and wide geographic reach. The business has its own sales presence in more than 55 countries, employs more than 7,500 employees and generates revenues of more than EUR 2 billion. Second, the deal was very complex. It required disentangling the Domestic Appliances business from the Philips group, which took over 18 months and had to overcome numerous challenges posed by the corona crisis. Creative measures were taken to ensure bidder engagement despite travel restrictions. Post-closing Philips will continue to have certain commercial arrangements with the Domestic Appliances business, including a trademark license agreement, supply agreement and transitional services. These were all managed and negotiated swiftly in the auction process enabling signing shortly after the delivery of the binding offers. Third, the deal is struck at a competitive purchase price with a reputable private equity fund which is well-positioned to help the Domestic Appliances business further grow in Asia. Furthermore, this is a strategic transaction concluding the transformation process of Philips.
Deal rationale:
Since 2003, Philips – a Dutch flagship company – has undergone a transformation into a global leader in health technology. Its strategy is to deliver integrated solutions that (i) support professional healthcare customers optimizing health system performance, as well as (ii) consumers with their health. As part of this strategy, Philips has initiated several major divestments of other business operations. Examples of these are the divestments of Dutch Aero, NXP, Lumileds and Signify. Through this deal, Philips has sold its kitchen, coffee garment care and home care appliances business to Hillhouse Capital. It therefore marks the final major divestment in Philips' long-lasting transformation. In addition, Hillhouse Capital has deep experience in integrating technology and data-driven architectures to drive digital innovation and business expansion. Domestic Appliances will therefore be in a great position to continue to bring meaningful innovations to consumer's homes.
What is the impact of this deal on the company?
The deal is Philips' final divestment in its transformation into a global leader in health technology. Philips received cash proceeds after tax and transaction-related costs of approximately EUR 3 billion, whilst the deal also comes with an additional 15-year brand license agreement with annual payments that represent an estimated net present value of approximately EUR 0.7 billion. [Philips will use the revenue for acquisitions and, in fact, has already done so. The medical technology group already made three acquisitions during the last six months. The most important of these was the acquisition early this year of BioTelemetry for $2.8bn (almost €2.4bn), a US company specializing in online heart monitoring and diagnosis.
What is the impact of this deal on the direct stakeholders?
Hillhouse's support enhances career development opportunities for Philips Domestic Appliances employees. The proceeds from the transaction will be used for a mix of dividends, share buybacks and possible acquisitions. Current rights and benefits of Philips Domestic Appliances’ employees, existing pension rights of Philips Domestic Appliances’ current and former employees and existing social policies and social plans will be respected by the buyer; and the buyer will also recognize existing rights and arrangements with the works council and employment applicable legislation.
What is the impact of this deal on society?
Hillhouse Capital's objective in this acquisition is to help the companies in their ambition to achieve long-term sustainable growth. Thus, the acquisition of Philips' home appliances business remains a real opportunity to achieve this vision. The Domestic Appliances business will remain headquartered in the Netherlands. The business employs approximately 7,000 employees and there will be no redundancies as a result of the transaction. The company now can invest in sustainable growth and will do so to focus on product development.
Hillhouse Capital wants to bring high quality products to support healthy and fulfilling lifestyles for consumers across the globe. Also important to mention is that Hillhouse’s philanthropic efforts support a wide range of activities in education and the arts and sciences. They actively donate to carefully selected institutions.
What was most complex about this deal?
First, it was a global deal which makes it more complex. Chinese buyers today are confronted with all kinds of new laws and regulations and 'demands' from the society. Therefore, the strategy was very important to show the added value of the buyer. The sustainability and ESG agenda and goals were considered as a dealmaker and/or braker. The buyer has a clear path it wants to follow and was able to substantiate this. The combination of a very short window to do the transaction, amidst the COIVID-19 pandemic and with rapidly changing market circumstances. This transaction also showcases the ability to orchestrate a highly efficient tailor-made process, in the middle of the COVID-19 crisis, within a very short timeframe while maintaining maximum pressure on the buy-side, secure a binding bid in the shortest timeframe by containing depth of due diligence, and maximize confidentiality of the informal process.
