LONDON Private equity specialist BC Partners is assessing alternative financing options as banks remain shut for business and traditional leveraged buyout (LBO) firms hibernate, a senior executive said on Tuesday.
Managing partner Andrew Newington told the Reuters Hedge Funds and Private Equity Summit that private equity firms are considering equity-heavy buyouts of smaller firms that may also involve some degree of vendor financing.
"If you assume that the classic LBO is hibernating until the banks reawaken, you are looking at smaller companies simply because of the size of commitments that are required," Newington said.
Only $3.62 billion of leveraged loans had been completed by early March, according to Thomson Reuters LPC data, compared with $23.4 billion in the first quarter of 2008, and the auction process has almost ground to a halt.
BC Partners funded the acquisition of German transformer maker SGB Group last October in an all-equity deal and was planning to refinance the debt.
However, with banks closed for business, BC Partners will now hold on to the debt, in the short term, rather than refinance.
Other less conventional financing structures are also being discussed, through necessity, and may include a combination of preferred and ordinary shares or convertible shares - in what would be a new move for the industry.
"Historically we would buy control through the equity layer of the company, now you might be looking at a combination of control and some kind of contractual return," Newington said.
Newington stressed the need for robust company analysis and said that BC Partners will maintain its focus on the healthcare, business-to-business, media and broadcasting and telecom sectors.
"There are clearly a lot of opportunities within the industrial sector today, but given the range of opportunities one has available today, it's not immediately evident that's the first place that you'd go shopping," Newington said.
(Reporting by Tessa Walsh; editing by Simon Jessop)