By Tommy Wilkes
LONDON, April 29 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
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
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
Barclays advised Oaktree while Rothschild and Credit Suisse
advised PAI Partners.