RLPC-Firms eye private equity portfolios for acquisitions

LONDON, Oct 17 (Reuters) - Cash rich companies are eyeing European private equity firms’ portfolios for strategic acquisitions as sponsors try to bypass the frozen leveraged loan and volatile equity markets and exit their investments, banking sources said on Friday.

Paralysis in the leveraged loan market is making it difficult for private equity firms to raise debt for new leveraged buyouts, which previously included secondary buyouts where one private equity firm sold to another.

Private equity firms are looking for trade buyers to fill the gap left by the collapse of secondary buyouts and IPO exits in a falling stock market.

“Trade buyers, which are either cash rich or still have access to sources of external financing, are now looking to pre-empt upcoming auction processes by knocking on the door first and making an offer,” a leveraged specialist told Reuters Loan Pricing Corporation.

European leveraged loan issuance plummeted to $90.95 billion in the first three quarters of 2008, down from $316.59 billion in the same period last year, according to RLPC data.

Leveraged lending is at a near standstill in October after Lehman Brothers’ collapse. Bankers and investors see little likelihood of a thaw before the end of 2009 and private equity firms are having to come up with creative solutions.

Sponsors are looking in the first instance for trade buyers with deep pockets which built up unused acquisition war chests in the bull market.

"In recent times trade buyers have hoarded large amounts of money and they need to put it to work." a banker said. French food and services provider Sodexo EXHO.PA acquired French food service provider Score Groupe from Abenex Capital while U.S. manufacturer 3M acquired French licence plate and road sign maker Financiere Burgienne from Fonds Partenaires Gestion.

Private equity firms are otherwise adopting a new pro-active approach which threatens to cut out traditional arranging banks.

Sponsors are using their own resources to fund new purchases primarily with equity and are using equity injections to shore up the capital structures of existing portfolio companies that cannot be sold.

Private equity firm BC Partners recently agreed to acquire German transformer maker SGB Group in a deal financed mainly with equity.

Buyout shops are also teaming up with trade buyers to make full equity-only acquisitions. Advent International recently teamed up with La Post subsidiary Doc@Post to acquire Experian's EXPN.L French electronic payments business for 203 million euros.

Some of these deals are likely to contain a small debt element which private equity firms’ will then sell on to relationship banks in a reversal of the normal debt-raising process, banking sources said. (Reporting by Alasdair Reilly; Editing by Jon Loades-Carter)