Cleaning giant ISS explores new LBO - sources

Wed Oct 27, 2010 1:12pm EDT

* ISS, owned by EQT and Goldman since 2005, worth some $7bln

* Trio announced reviewing options, including IPO, in August

* Sources say hefty "secondary buyout" being explored

By Quentin Webb

LONDON, Oct 27 (Reuters) - Goldman Sachs (GS.N) and Sweden's EQT (EQT.N) are exploring selling ISS [ISSHOI.UL] [ISSFN.UL], their $7 billion Danish cleaning giant to fresh private equity investors, sources said, in what could be Europe's biggest buyout since the credit crisis.

People familiar with the matter said the duo, wich are officially considering "strategic options" including a listing of ISS, have been in contact with major private equity firms and banks about a possible deal.

Any so-called secondary buyout would be challenging, given the equity and debt funding required, and would probably require several buyout firms to club together, which does not yet appear to have happened, they added.

But the fact such a takeover is being discussed illustrates how rapidly private equity dealmaking is recovering -- aided by a booming high-yield bond market and banks' increasing willingness to extend leveraged loans.

With an enterprise value of nearly 40 billion Danish crowns ($7.4 billion), on Jyske Bank estimates, ISS is worth half as much again as 2010's largest European buyout -- Canadian investors' $4.5 billion takeover of Britain's Tomkins Plc.

Two months ago, ISS and its owners, which bought it in 2005, confirmed they had hired Goldman's own bankers and Morgan Stanley for "a strategic review process, which includes considering an initial public offering" (IPO).

The size of the possible leveraged buyout (LBO) means only the largest firms, such as Advent International, Bain Capital, Blackstone (BX.N), The Carlyle Group [CYL.UL], KKR (KKR.N), TPG [TPG.UL] and Warburg Pincus [WP.UL], are likely to contemplate a deal.

Apax, BC Partners [BCPRT.UL], Cinven [CINV.UL], and Nordic Capital are among those who have previously considered buying ISS, one of the people said.

"We are evaluting strategic alternatives for ISS. This could result in a listing of the company or change in ownership," an ISS spokesman said, but declined to comment further.

EQT and Goldman Sachs (GS.N) declined to comment. The private equity firms either declined to comment or had no immediate comment.

SCHOOL MEALS

ISS says it is one of the world's largest providers of facility services, employing nearly half a million people in about 50 countries who clean offices, cook school meals, guard buildings and operate call centres.

It competes with Britain's G4S Plc (GFS.L) and Compass Group Plc (CPG.L), France's Sodexho SA (EXHO.PA), and Sweden's Securitas AB (SECUb.ST).

It made pro-forma adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of 4.9 billion crowns in the first half of this year, on revenues of 36.2 billion.

It is unclear how much fresh leverage could be piled on the company, given net debt already totals about 6.6 times EBITDA.

Analysts and bankers say buyout firms may also be looking at purchasing Compagnie de Saint Gobain SA's (SGOB.PA) 4 billion euro ($5.52 billion) glass-bottle unit, which would pre-empt another big European IPO. [ID:nLDE69D1PZ] ($1=5.402 Danish Crown) ($1=.7242 Euro) (Reporting by Quentin Webb; Editing by Karen Foster)