By Nathan Layne and Christiaan Hetzner
TOKYO/FRANKFURT (Reuters) - Germany's biggest bathroom fittings company Grohe has been snapped up by Japanese building products group Lixil (TYO:5938) in a 3.06 billion euro ($4.13 billion) deal, marking the largest ever investment by Japan in Europe's biggest economy.
Lixil's leveraged buyout of Grohe from financial investor TPG Capital (TPG.UL) and the private equity arm of Credit Suisse (CSGN.VX) shows renewed appetite by Japanese firms for deals outside their home market.
Suntory Beverage & Food Ltd (2587.T), Japan's second-largest drinks maker, just agreed to buy GlaxoSmithKline Plc's (GSK.L) Lucozade and Ribena brands for 1.35 billion pounds.
Lixil Group Corp has formed a 50-50 joint venture with state-backed Development Bank of Japan to buy majority control over Grohe (GROH.UL), creating a global group with more than 4 billion euros in annual sales.
Grohe will give Lixil the wide footprint in Europe it was seeking, Chief Executive Yoshiaki Fujimori told Reuters earlier on Thursday that his company would likely now take a break from major deals to focus on integrating its purchases.
"This is probably it for the time being, because we've done American Standard, we've done Permasteelisa," said Fujimori, a former General Electric (GE.N) executive who put Lixil on its growth-by-acquisition path since taking the helm two years ago.
Lixil, formed by mergers of several Japanese building products makers, bought Italian curtain wall maker Permasteelisa in 2011 and U.S. toilet and plumbing fixtures maker American Standard for $542 million in August.
Grohe's private equity owners, which purchased the German maker of high-end bathroom and kitchen fixtures for 1.5 billion euros in 2004, had also been considering a stock market listing alongside efforts to sell the company.
Grohe holds a majority stake in Chinese bathroom fittings maker Joyou (JY8.DE), which is Frankfurt listed. Its shares were down 1.2 percent at 5.04 a.m. EDT.
Lixil has lined up more than 200 billion yen ($2 billion) in loans from Japanese banks to finance the deal, which will be conducted through a special purpose company to limit the strain on Lixil's finances, a banking source with knowledge of the matter said.
Fujimori said Lixil had no plans to issue shares to fund the purchase and would instead use a mixture of cash and borrowing.
Lixil said earlier this year that it was aiming to roughly double its operating profit margin and consolidated revenues to 8 percent and 3 trillion yen, respectively, over the medium term, fuelled in part by overseas expansion.
Grohe said the transaction was the largest ever investment made by a Japanese company in Germany. It is also likely to rank as the second-largest overseas acquisition announced by a Japanese firm in 2013 behind the nearly $6 billion purchase of Thailand's Bank of Ayudhya PCL (BAY.BK) by Mitsubishi UFJ Financial Group <8306.T>.
Japanese firms have spent $27 billion in buying foreign companies so far in 2013, compared to a record $83 billion for all of 2012, with some bankers and executives attributing the slowdown to the reversal in yen strength. The Japanese currency was trading around 98 to the dollar on Thursday, compared with around 76 yen in November last year.
Shares in Lixil jumped 3.9 percent on Thursday, compared with a 0.7 percent rise in the broader Tokyo market (.TOPX).
Grohe said the deal was expected to close in the first quarter of 2014.
(Editing by Edmund Klamann, Chris Gallagher and Jane Merriman)