February 14, 2008 / 1:52 PM / in 10 years

RLPC-Apax cancels Emap combination due to tough loan market

LONDON Feb 14 (Reuters) - Private equity firm Apax Partners [APAX.UL] has decided not to combine UK media business Emap with its Incisive Media and American Lawyer businesses due to adverse loan market conditions, banking sources said on Wednesday.

Apax was considering rolling the three businesses together in a ‘buy and build’ strategy that would have combined Emap EMA.L with Incisive Media and American Lawyer, which Incisive Media bought for $630 million in July.

Apax was unwilling to put more equity into a larger combined financing of 1.1-1.2 billion pounds to bring down leverage ratios to levels that better reflect current loan market conditions, banking sources said.

“Apax is not rolling in Incisive Media or American Lawyer — doing a stand-alone deal is easier. The financing terms were too onerous on the rollup and they didn’t want to put more equity in,” a banker close to the deal said.

The decision shows the difficulties private equity firms are having raising financing in a crippled European leveraged loan market and also the loan market’s extreme lack of liquidity.

Banks’ lack of confidence in placing a larger deal of 1.1-1.2 billion pounds also played a major part in Apax’s decision, bankers close to the deal said.

Guardian Media Group and Apax agreed the buyout of Emap and its business to business unit in late December for around 1 billion pounds and mandated GE Commercial Finance (GE.N), HSBC (HSBA.L), Lloyds TSB (LLOY.L) and Royal Bank of Scotland (RBS.L) to lead an 850 million pounds leveraged loan financing.

A larger financing for the combined group would have entailed refinancing the favourable 178 million pounds pre-crisis loan that was put in place in June 2007 by arranger Royal Bank of Scotland to back the 199 million pounds acquisition of Incisive Media.

Apax also has an underwritten offer from Royal Bank of Scotland backing its $630 million purchase of American Lawyer. That deal was caught in the credit crunch and is now part of the overhang of aggressively priced and structured leveraged loans that remains to be syndicated.

“The other two deals were structured when the market was red hot and have high leverage multiples. In today’s market you would need lower leverage on the refinancing that would require additional equity to get the deal done. Apax chose not to,” another banker close to the deal said.

The 850 million pounds loan backing Apax Partners’ purchase of Emap will now be syndicated as a stand-alone deal in early March, sources said.

Loan market conditions have deteriorated in the interim and the financing may have to be flexed to reflect a tougher market as the size of the deal and sterling currency may still prove challenging to a highly illiquid loan market, sources said.

Difficult debt market conditions may however see Apax postponing its buy and build plans rather than cancelling them, sources said.

“I think Apax will ride out the market and if they can put the businesses together in 12-18 months, they will,” a banker close to the deal said.

Reporting by Tessa Walsh; editing by Elaine Hardcastle

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