| LONDON, March 18
LONDON, March 18 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
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
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
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.
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
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
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
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)