Gas supplier Praxair Inc (PX.N) will buy NuCO2 Inc, a seller of beverage-grade carbon dioxide, from private equity firm Aurora Capital Group for $1.1 billion to capture some market share from Airgas Inc (ARG.N) in the high-margin packaged gas business.
Praxair bought 17 smaller gas distributors last year in a bid to better compete with Airgas, which commands a quarter of the $7 billion packaged gas market.
Praxair has a 12 percent share in the packaged gas business, which sells atmospheric gases, carbon dioxide, hydrogen, helium and acetylene in metal cylinders to customers requiring small volumes.
"This deal (NuCO2) fits in with Praxair's strategy of expanding its U.S. package gas business through acquisitions," Atlantic Equities analyst Colin Isaac said, adding that the acquisition will significantly increase the company's market share.
NuCO2 supplies carbon dioxide that is added to fountain soda and draught beer, and provides delivery services to restaurant chains, convenience stores and entertainment locations.
The acquisition, Praxair's biggest ever, is expected to be neutral or add slightly to its 2013 earnings per share, estimated at between $5.85 and $6.10.
"Acquisition multiples of 4.5 times sales and 9.5 times EBITDA look fair," Atlantic Equities' Isaac said.
NuCO2 is expected to generate full-year sales of about $250 million in 2013 and $115 million in earnings before interest, taxes, depreciation and amortization (EBITDA).
Praxair, valued at about $32.74 billion, expects 2013 sales of about $12 billion. The packaged gas business accounted for 29 percent of its $8.42 billion sales in the nine months ended September 30.
NuCO2 has 150 depots each serving about 1000 customers and 300 delivery vehicles.
"We plan to continue to grow the business in the United States, enhance distribution efficiency utilizing Praxair's competencies in logistics, and extend NuCO2's offerings to customers in other regions of the world," Eduardo Menezes, executive vice president of Praxair, said in a statement.
The deal, expected to close by the end of the first quarter, gives Aurora Capital more than twice the value of its $487 million investment in NuCO2.
NuCO2, which was taken private in 2008, withdrew plans for an initial public offering last July, more than two years after it first filed to list its stock.
The company was exploring a sale and had hired Goldman Sachs Group (GS.N) to run an auction, Reuters reported last month, citing sources.
NuCO2, like Praxair, has a micro-bulk beverage carbonation system that replaces traditional cylinders with an uninterrupted supply of on-site carbon dioxide, helping customers improve drink quality and avoid "flat" drinks.
Praxair shares were up a percent at $111.60 on Tuesday morning on the New York Stock Exchange.
(Reporting by Swetha Gopinath and Garima Goel in Bangalore; Editing by Supriya Kurane)