RLPC-Loan bankers prep for buyout rush

LONDON, March 18 Mon Mar 18, 2013 6:53am EDT

LONDON, March 18 (Reuters) - Excess loan liquidity, strong credit markets and a relatively stable eurozone are driving a resurgence in the number of auctions in Europe that has leverage finance bankers hopeful of a turnaround in M&A activity after five slow years.

About $20.8 billion of leveraged loan financing will be needed to back the auctions in the current M&A pipeline, far exceeding all LBO related leveraged loans for the whole of 2012, which totalled $17.25 billion.

"The equity and credit markets are flying, EV multiples are very high and debt financing is a lot easier than expected, so now is the time to flog your business," a leveraged investor said.

Bankers are busy working on debt packages of about 2 billion euros ($2.61 billion) to back a buyout of French catering company Elior ; 2 billion euros for a buyout of German energy-metering firm Ista ; 550-600 million euros to back a buyout of Swedish bedmaker Hilding Anders ; $650-$700 million for an acquisition of livestock identification company Allflex ; and around 350-400 million euros of debt for an acquisition of German insulation firm Armacell .

Other jumbo financings would be needed to back buyouts of motoring services firm the AA that owner Acromas is considering selling, with buyout houses requiring about 2 billion pounds of debt to fund an acquisition, while bankers are preparing debt packages of around 6 billion pounds to back a potential buyout of Britain's biggest mobile telephony operator Everything Everywhere.

RAPID GROWTH

The M&A pipeline has grown rapidly thanks to a liquidity build-up that has emerged across Europe, tempting sponsors to do deals following a dearth of M&A last year.

Private equity firms have substantial dry powder that needs to be spent and at the same time a number of buyout houses are in fundraising mode and need to sell companies to show successful exits to potential investors.

In addition, there is an increase in the number of investors looking to invest in European deals, including US funds attracted by higher yields and those looking to follow in the footsteps of Cairn Capital, which recently raised the first European CLO for four years. Funds such as 3i, Apollo , Investec, KKR, New Amsterdam and Pramerica have all been touted as potentially raising the next European CLO.

There is also pressure on existing CLOs to be invested before they come to the end of their reinvestment periods.

"There are new CLOs, existing CLOs and new credit funds that all need product to invest in and at the same time sponsors that are fundraising need to liquidate assets and crystallise returns to show successful exits to new investors. There was also not much M&A last year," a leveraged finance banker said. "All these factors have all come together at the same time and have created the perfect storm for M&A, which is why there are so many auctions out there."

Other potential M&A deals that will require debt financing include a sale of pan-European cinema operator Odeon ; pay TV and internet service provider Canal Digital ; ferry group Scandlines ; industrial ceramics group Ceramtec; logistics group Unifeeder ; German academic publisher Springer Science+Business Media ; Finnish telecoms company DNA ; food service business Eurocater; French medical-diagnostics company Labco ; ice-cream maker R&R ; French fashion brands SMPC: and Deutsche Telekom's online classified arm Scout.

IN DECLINE

Annual European leveraged buyout loan volume peaked in 2007 at $155.2 billion and has been depressed ever since, hitting a low of $9.6 billion in 2009 before creeping up to $25.5 billion in 2010 and $44.5 billion in 2011 before falling again to $17.3 billion last year.

There are also expected to be more loans to back cross-border deals, following an increased number of them in 2013.

The $12 billion buyout financing backing ketchup maker HJ Heinz includes $10.5 billion in term loans, split between a six-year TLB1 tranche and a seven-year TLB2 tranche. The term loans include $8.5 billion denominated in dollars, up to $1.4 billion in euros and around $600 million in sterling. The euro and sterling tranches offer 50bp more than the dollar tranche.

A $13.75 billion debt package backing the $24.4 billion buyout of US computer maker Dell is expected to include a carve-out of around 500 million euros for European investors, although no update has been given on the timing of the launch of the financing after the M&A deal ran into shareholder opposition.

KKR's acquisition of industrial machinery manufacturer Gardner Denver is also backed by a multicurrency debt financing. The $3.4 billion financing includes a $525 million senior secured term loan to be drawn in euros.

"The most active M&A regions this year are likely to be Germany, the UK and France, as well as a lot of action from cross-border deals. A number of auctions are from companies in these regions, which are strong and ready to do deals," the leveraged finance banker said. ($1 = 0.7654 euros) (Reporting by Claire Ruckin; editing by Christopher Mangham)

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