Valvoline Inc. [NYSE:VVV], a marketer and supplier of premium branded lubricants and automotive services, has kicked off a sale process for its Global Products segment, four sources familiar with the situation said.
The seller has reached out to potential buyers over the past couple of weeks to gauge interest in the unit, each of the sources said.
Last fall, the Lexington, Kentucky-based company announced the separation of its two business segments — Retail Services and Global Products. In a press release announcing the separation, CEO Sam Mitchell said the company’s confidence in separating the two strong businesses reflects the “tremendous progress.” Goldman Sachs has been mandated to help the company with the separation.
While a financial sponsor is the most likely buyer of the Global Products unit, a small number of strategics are expected to take a look as well, some of the sources said.
The Global Products division generated an adjusted EBITDA of USD 327m, while delivering volume growth of 16% and operating income growth of 5%; the adjusted EBITDA margin was 18.6%.
In the event of a sale, the business is expected to fetch a mid-to-high single-digit EBITDA multiple, given it is a low-growth business, each of the sources said. Valvoline has considered monetizing the Global Products division for a few years, but the Retail Services business was initially too small to be a viable separation candidate, one of the sources said.
For FY21, the Retail Services arm generated adjusted EBITDA of USD 382m, or a 31% margin, on USD 1.2bn in sales. The segment also represented 41% of the company's total sales and 54% of total adjusted EBITDA.
CEO Mitchell described the Global Products unit as a “high cash-generating business, which we believe will thrive well into the future.”
Value-oriented and mid-market financial sponsors such as Platinum Equity, American Securities, Apollo Global Management, Cerberus Capital Management, and KPS Capital Partners could be logical suitors, the sources said.
If the sale falls through, Valvoline is likely to spin off the unit, these sources said.
Valvoline is estimating FY 2022 adjusted EBITDA to be in the USD 675m-USD 700m range. The company has net debt of around USD 1.5bn, according to its 1Q21 earnings release.
Valvoline declined to comment.
