Europe braced for wave of leveraged buyout financing

LONDON Fri Mar 21, 2014 1:13pm EDT

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LONDON (Reuters) - Some 18.5 billion euros ($25.50 billion) of leveraged buyout financing in the immediate M&A pipeline is expected to take some pressure off an overheating market and boost bankers desperate for underwriting and investors eager to put mounting cash piles to work.

The M&A pipeline has been lackluster for much of 2014 but has picked up recently with two large deals entering exclusive talks - for France's second-biggest telecoms provider SFR and Danish card payment services company Nets - and a number of other deals in the final rounds of auction processes.

Cable group Numericable's (NUME.PA) potential acquisition of Vivendi's (VIV.PA) SFR will require around 13.5 billion euros of debt financing roughly split between loans and bonds, and the acquisition by Advent International and Bain Capital of Nets would need about 1.2 billion euros of debt financing.

"A number of deals are in the final stages of a sale process, which is positive as they will hopefully take some of the froth out of the market," a banker said.

An increase in event-driven financing is expected to take some attention away from reprising. A lack of M&A so far this year caused banks to pitch reprising to a number of borrowers happy to review portfolio companies and get better terms by squeezing investors.

"Everyone wants more M&A financing. It pays a lot better than reprising," a second banker said.

BATTLE FOR UNDERWRITINGS

Bankers are working on debt financing packages for deals in the latter stages of auction processes, and competing to secure a lead role on profitable underwritings.

Deals include the sale of Alstom's heat exchanger unit, which would require about 475 million euros of debt financing, with final bids due around March 24; the sale of German industrial machinery and process engineering group GEA, which would require about 1 billion euros of financing, with bids due by April 4; and French natural ingredients producer Diana Ingredients, which would require some 700 million euros of debt, with bids due by April 8.

Other deals include the sale of Spanish food group Deoleo, which needs about 560 million euros of debt, with bids due around April 2; 200 million euros for online car rental company CarTrawler, which is expected to be finalized in the coming weeks; and about 1 billion euros of debt financing for the sale of German packaging group Mauser, with bids due in early April.

The timing of the deals could affect the extent of the impact they have on the market. If they are all syndicated around the same time, investors will be able to choose where to invest their money and borrowers will need to become less aggressive on structure and terms to ensure investors join the deal.

"Too much debt is potentially needed from the market (for borrowers to be able) to screw around on terms, as these deals will need the support of the smaller banks and investors. As well as needing new liquidity, a lot of these deals have existing lenders and the new owners will want to try and keep hold of that. There will be some concessions on documents. Not every deal will be priced tightly or will be covenant-lite," a third banker said.

(Editing by Christopher Mangham)

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