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Executive Summary

McGAW GOING TO KENDALL MANAGEMENT IN $ 960 MIL. LEVERAGED BUYOUT co-financed by New York investment firm Clayton & Dubilier. The Kendall management group is being led by President and CEO Dale Sherratt. Under the purchase agreement, a new company formed by Clayton & Dubilier and the Kendall management will acquire from Colgate Kendall's worldwide hospital supply business, and the Kendall-McGaw intravenous solution business, Kendall-Futuro home health care businesses, Respiratory Care pulmonary therapy business, Polyken specialty adhesives business, and the U.S. Curity/Curad consumer adhesives line. Sales for the group were approximately $ 850 mil. in 1987. The agreement values Kendall at approximately $ 1.1 bil., according to Colgate. The sale price of $ 960 mil. reflects an agreement that Colgate will retain "certain financial and business assets including real estate in various locations and some overseas non-healthcare consumer products businesses" which are part of the Kendall operation, the company said. The leveraged buyout offer is worth 10 times the hospital products business' expected 1988 operating income. Industry sources project 1988 revenues of $ 950 mil. for the Kendall group, with operating profit of $ 95 mil. Colgate will use the more than $ 700 mil. in after-tax proceeds from the sale to reduce debt and to "develop and acquire consumer product businesses." The transaction is expected to net Colgate over $ 200 mil. in after-tax income. Colgate will receive $ 910 mil. in cash and $ 50 mil. in debentures for Kendall. The sale is expected to close in the fourth quarter. Colgate announced its intention to sell Kendall and exit the professional healthcare business in late April. The firm has run a health subsidiary since 1972. The transaction is the largest leveraged buyout handled thus far by Clayton & Dubilier. The private investment firm currently manages a pool of approximately $ 300 mil. in institutional capital for investment in management buyouts. Since it was formed in 1978, the company has participated in more than 12 acquisitions, including, in the past two years, the purchase of the Uniroyal Goodrich Tire Company and the Oklahoma Division of Safeway Stores. An indicator of the market's current interest in health care LBOs is the number of medical LBO funds which have been springing up lately. Ex-J&J exec David Collins is heading a new $ 100 mil. management buyout fund, Galen Partners, in cooperation with New York City health care consulting firm, The Wilkerson Group. At a Sept. 15 symposium in New York, Wilkerson President John Wilkerson said that investment banking firm Robertson, Colman & Stephens has established a $ 60-$ 70 mil. medical LBO fund, and that Alex. Brown is in the process of forming its own fund.

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