Apax set to pay $8.5 billion for Danish cleaner ISS

LONDON (Reuters) - Private equity firm Apax is in exclusive talks to buy Danish cleaning company ISS for $8.5 billion including debt, a person familiar with the situation said, flagging what could be Europe's largest buyout since the credit crisis.

The owners of ISS ISSHG.UL -- Goldman Sachs (GS.N) and Swedish buyout firm EQT -- have been considering an initial public offering (IPO) or a sale of the company, one of the world's largest facilities services firms which employs more than 500,000 people.

Apax entered exclusive talks after beating bids from rival private equity firms.

Reuters reported in November that Apax was preparing a bid for the business, as were a consortium of Blackstone (BX.N), Bain Capital, Nordic Capital and Clayton Dubilier & Rice, and a team of CVC CVC.UL and Apollo APOLO.UL. Britain's Daily Telegraph newspaper first reported the exclusive talks on Wednesday.

"It's a rich price but ISS is a good business that gives off a lot of cashflow and Apax wants to put money to work," said a banker who has followed the process.

ISS operates in more than 50 countries, cleaning offices, cooking school meals and providing security for people and properties.

Its main peers are UK security services group G4S (GFS.L), French catering and services company Sodexho SA (EXHO.PA), UK catering services provider Compass Group (CPG.L) and Swedish security services company Securitas AB (SECUb.ST).

Goldman Sachs' private equity arm and EQT bought ISS in a leveraged buyout in 2005. That deal valued the business at $5.3 billion including debt, according to Thomson Reuters data.

A sale would mark a change in direction from last month when ISS Chief Executive Jeff Gravenhorst told Reuters the firm was focused on an IPO.

The Copenhagen bourse has been more receptive than many to private equity backed flotations, welcoming the listing of Danish jeweler Pandora and set for Europe's third largest stock offering this year with telecoms giant TDC (TDC.CO).

Private equity companies have also been attracted to ISS due to its scale and strong cashflow.

Unlike rival buyout firms who teamed up to bid, Apax is talking to sovereign wealth funds and large pension funds that invest in its 11.2 billion euro ($14.8 billion) buyout fund about investing directly in ISS, the person said.

Apax's maximum equity investment in deals is around 600 million euros, leaving it over $2.5 billion to find from co-investors with about $5 billion to be funded through debt, the person said. The group has a couple of months to round up the investment, the person said.

Apax counts Singapore's sovereign wealth fund GIC, China's CIC and Future Fund of Australia among its investors, as well as Canada Pension Plan Investment Board and Alpinvest in the Netherlands.

Apax declined to comment. EQT and Goldman were not available for comment.

ISS declined to comment on the news that Apax was in exclusive talks, but a spokesman said the company continued to consider strategic options.

(additional reporting Peter Levring in Copenhagen; Editing by Will Waterman and Andrew Callus)

($1=.7566 Euro)