Mar 26, 2007 | Jonathan Braude and David Carey, Excerpted from The Deal

JLL Buys Aerospace Unit from Melrose

British investment company Melrose plc said Friday that it will sell McKechnie Aerospace to New York private equity house JLL Partners for $855.6 million.

Brett Milgrim, a managing director at JLL, said his firm was drawn to McKechnie’s strong profit margins.

JLL plans to build the business via bolt-on acquisitions. He said Bear, Stearns & Co. was arranging debt financing for the deal. Milgrim declined to say how much JLL will invest.

The $855.6 million transaction value includes $5.6 million of assumed debt.

The sale to JLL does not include either Dynacast or some of the smaller businesses in the McKechnie Group, and it may also exclude McKechnie Aerospace OEM’s U.K. operations, if an agreement cannot be reached with the trustees of the company’s U.K. pension scheme and the U.K. Pensions Regulator. In that case, the purchase price will be reduced by $40 million to $810 million. The sale is also conditioned on antitrust approval in the U.S. and agreement by Melrose shareholders.

Melrose has agreed to pay JLL a breakup fee of 1% of its own market capitalization at the date of the share purchase agreement if its shareholders vote the deal down.

In addition to door latches, McKechnie makes rods and struts for aircraft interiors and distributes aircraft batteries. Boeing Co. and Airbus SAS are key customers.

In the year ended Dec. 31, McKechnie Aerospace generated revenue and operating profit of £155.1 million and £33.6 million, respectively. Ebitda was £36.4 million, while net assets were £133.5 million as of Dec. 31.

Melrose closed Friday at 193.75 pence a share in London, up 0.75 pence, or 0.4%, on Thursday’s close. At that price, its market value is £498 million.

Ravi Gupta of Rothschild and Adam Signy of law firm Clifford Chance LLP advised Melrose on the sale.

Skadden, Arps, Slate, Meagher & Flom LLP’s Robert Pincus and Allan Murray-Jones were counsel to JLL.