May 7, 2020 / 2:59 PM / 20 days ago

Banks line up for GTT infra unit sale

LONDON, May 7 (LPC) - Bankers are looking at arranging debt financings of up to €1bn to back a sale of US cloud networking company GTT’s infrastructure division as a window of opportunity for a handful of M&A situations emerges.

M&A in any meaningful size had all but disappeared by March, when Europe and the US went into lockdown, bringing a halt to any processes that were due to launch or were already under way.

A window has since emerged for several companies, not too adversely affected by Covid-19, to be sold and processes are set to get going this month.

“People are asking whether they should start launching sellside processes, versus four weeks ago when nothing was on the table and there were no conversations to be had. It may not be a bad time to start selling, particularly for decent business unlikely to be as affected such as software and TMT names,” a syndicate head said.

Liberty Global and Telefonica announced on Thursday that they have agreed to merge their British businesses – Virgin Media and O2 – in a US$38bn deal including debt, in the biggest shake-up in the British telecoms market for five years (see Top News).

“Clearly, there is a little bit of momentum for companies that are very stable and either have a very clear story on the impact of Covid-19 or have experienced a limited impact from it. Selectively, we will see some processes reopen. I don’t think a flurry of deals but for good assets with great underlying businesses we hope there will be some activity resurfacing starting in May,” a second syndicate head said.

GTT announced the appointment of Goldman Sachs and Credit Suisse in November as financial advisers in connection with a sale of the infrastructure division, which includes fibre networks from the Interoute and Hibernia acquisitions in 2018 and 2016, respectively.

GTT is pressing ahead with the sale and information on the division was sent out a couple of weeks ago, banking sources said.

First round bids are due in an auction process on May 14 and the plan is to get the sale wrapped up by August, the sources said.

The sale is expected to attract both private equity firms and infrastructure funds.

GTT was not immediately available to comment on the timings of the sale.

Banks are working on debt financings totalling up to €1bn or between four and six times the division’s approximately €170m Ebitda, the sources said.

HIGHER FEES, MORE FLEX Banks have been reluctant to underwrite new financings and take on risk but could have appetite for the right credit, especially after Europe’s leveraged loan market begins to reopen. Yet banks will be more conservative than normal and are likely to ask for higher fees, more flex protections and lower leverage.

“People want to know what the debt will look like for a buyout. For the right credits it will be there, but it could be wider priced and lower leveraged,” the first syndicate head said.

Banks may also want to sound out investors prior to committing to an underwriting to have more visibility on the syndication process.

“You might want to know one or two big investor accounts will support the transaction before committing to the deal,” the second syndicate head said.

TIME IS OF THE ESSENCE

The window for M&A is, however, viewed as limited, given any sale process takes around two to three months. If a company waits, the fear is that it could get caught in a second wave of Covid-19 from October and an additional lockdown, delaying any sale process by at least a year.

“If a company waits until September to start a process and a second wave of the virus hits shortly afterwards, then it may be that they can’t sell for another 12–18 months and who knows what the world and economy will look like then,” the first syndicate head said. (Editing by Christopher Mangham)

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