Signature Group Holdings has entered into a definitive stock purchase agreement to acquire the Global Recycling and Specification Alloys ("GRSA") business of privately-held Aleris Corporation for $525 million. The Board of Directors of Signature unanimously approved the proposed transaction. General Electric Capital Corporation will provide a$175 million asset-based lending facility to finance the growth of the company.
This marks the entry of Signature into the resurgent aluminum market in North America and Europe. GRSA, the largest independent aluminum recycler in the world, is positioned to take advantage of improving fundamentals reshaping global aluminum markets. Sectors such as automotive, aerospace, packaging, building and construction are all experiencing increased aluminum consumption. The automotive sector, in particular, is consuming more aluminum as government mandates require reduced carbon emissions and compel auto manufacturers to increase fuel efficiency.
Under the terms of the stock purchase agreement, Signature will acquire GRSA for a purchase price of $525 million comprised of $495 million in cash and $30 million in preferred stock in Signature. The purchase price represents a multiple of approximately 6.5 times GRSA's Adjusted EBITDA as described above using the midpoint of the estimated improvements in third quarter results.
Signature expects to finance the acquisition with a combination of cash on hand, and the net proceeds from debt and equity financings. This includes the issuance of approximately $300 million of senior secured bonds in a private placement to qualified institutional buyers and certain non-U.S. persons, as well as a registered offering of Signature's common stock, and a registered stapled rights offering of additional shares of its common stock to Signature stockholders at a date to be determined. A portion of the rights offering will be backstopped by Zell Credit Opportunities Fund, L.P., an affiliate of Equity Group Investments, a private investment firm founded by Sam Zell. In connection with the transaction, Goldman Sachs will lead a committed bridge financing with Deutsche Bank in addition to the $175 million asset-based lending facility mentioned above. Those commitments are contingent on the satisfaction of standard conditions.
Deutsche Bank Securities, Inc. acted as exclusive financial advisor, and Crowell & Moring acted as legal advisor, to Signature. Credit Suisse and KeyBanc Capital Markets, Inc. acted as financial advisors, and Fried Frank acted as legal advisor, to Aleris.
GRSA, headquartered in Cleveland, Ohio represents approximately 30% of Aleris' total revenues at $1.5 billion. In 2013, the business shipped 1.2 million tonnes of recycled aluminum.
Signature is a North America-based holding company seeking to invest its capital in large, well-managed and consistently profitable businesses concentrated primarily in the U.S. industrial and commercial marketplace.