UPDATE 1-PAI Partners buys ice cream maker R&R for 850 mln euros

Mon Apr 29, 2013 6:28am EDT

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By Tommy Wilkes

LONDON, April 29 (Reuters) - French private equity firm PAI Partners will buy R&R Ice Cream from rival Oaktree Capital in a deal financed by a form of debt popular during the credit boom - but controversial because it is relatively high risk - which is now making a comeback in Europe.

A source with knowledge of the matter said Paris-based PAI will pay about 850 million euros ($1.1 billion) to buy the UK maker of Fab lollies and Skinny Cow ice cream, under an agreement which was announced earlier on Monday.

The deal will be financed by a 253 million euro five-year Payment-In-Kind Toggle note, one of the banks managing the deal told IFR. So-called PIKs are forms of debt allowing borrowers to pay interest in more debt instead of cash, though they must repay in full when the bonds are due.

PIKs were widely blamed for contributing to the collapse of UK fashion chain Peacocks last year, but have seen a comeback in Europe this year as buyout firms capitalise on the current strength of investor demand for higher-yielding debt. The Toggle version of the PIK typically requires borrowers to pay interest in cash only if their business is performing well.

R&R, which had 2012 full-year revenues of about 600 million euros and was bought by Oaktree in 2006, had said in October it was exploring strategic options that could include a sale.

Following the deal R&R's senior management will remain in place, and PAI said it plans to invest in expanding the Yorkshire-headquartered company's international business and its brands.

For PAI, the deal is one of several recent forays into the consumer sector: previous transactions include French yoghurt maker Yoplait in 2002 and Britain's United Biscuits in 2001.

Private equity firms are finding it hard to exit European businesses they own by listing them on the stock market or selling them to trade buyers, as worries about the region's economic woes keep investors on the sidelines.

Instead they are finding exit routes via secondary deals such as sales to other buyout firms - like the R&R transaction - to keep deals happening while strong debt markets make it easier for potential buyers to raise cash to fund new purchases.

According to data provider Preqin, overall European private equity deal volumes stand at 10.9 billion euros so far this year. This compares with 26.8 billion euros for the whole of last year.

Barclays advised Oaktree while Rothschild and Credit Suisse advised PAI Partners.

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