July 10, 2020 / 3:51 PM / a month ago

Bankers consider in excess of €10bn debt for potential sales

LONDON, July 10 (LPC) - At least €10bn of leveraged buyout financing is in the pipeline as European event-driven activity builds, with sellers preparing to launch new sale processes or dusting off deals that were put on hold when the Covid-19 pandemic hit the markets.

With a renewed appetite for risk, banks are looking to fund a number of M&A processes after managing to clear much of the underwriting risk that had been stuck on their books since March.

“Existing LBO risk has either been or is in the process of being cleared, so there is space for new deals,” a banker said.

Banks are in talks with a large number of private equity firms that are circling assets expected to be up for sale post-summer, including Unilever’s tea business and Philips’ domestic appliances division.

Unilever’s tea business would require debt totalling around €4.5bn, or around 6.5-7.0 times an approximate €630m Ebitda, while PDA would require debt in the region of €2bn or 6.0-6.5 times an approximate €280m Ebitda.

“Sponsors are starting to look at Unilever’s tea and Philips’ domestic appliance units and banks are approaching sponsors to let them know what they can provide,” a syndicate head said.

Both processes are expected to launch after the summer and involve complexities given the fact they are spin-offs, bankers said.

Unilever’s tea business has multiple components to it, including the leaf tea business and the India and Indonesian businesses, which are subsidiaries of listed businesses that Unilever has a majority stake in.

The sale is also expected to include half of the Pepsi-Lipton joint venture. While bankers are looking at it, there is a perception that Pepsi, which has first refusal on it, is the most natural buyer, bankers said.

“Unilever is a complicated animal. There are complexities in both trades which need to be ironed out and both are big deals when they come. They are likely to go down the LBO route as I’m not sure there is a strategic angle on them,” the banker said.

EAGER TO LEND

Non-binding offers are due next week on the sale of a majority stake in Proximus-owned telecoms firm BICS, (previously known as Belgacom International Carrier Services). Final bids are likely to be required around the end of August/September.

Citigroup and Perella Weinberg are running the sales process and bankers are working on debt packages of up to €630m, or 4.5 times an approximate €140m Ebitda. However, some bankers are being less aggressive and valuing debt at €455m, or 3.5 times an approximate €130m Ebitda.

Second round bids are due on eBay’s classified-ads business on July 14. Bankers have prepared debt financings of around €2.2bn to back a potential sale, which could fetch a price tag of around US$10bn.

The sale is attracting a lot of interest from banks eager to lend and keen to get onto a deal that is further along the road than other processes that are yet to launch. An eBay financing could come as soon as the third quarter if the sale process runs smoothly.

“It would be good to put some money to work quickly. eBay is likely to come soon whereas other processes that haven’t even launched yet could be Q4 financings or in some cases, 2021 events,” a second banker said.

Other sale processes that could get relaunched, having been put on hold due to coronavirus, include a €3bn sale of CapVest’s French nuclear medicine provider Curium; Smiths Group’s US$3bn sale of its medical-equipment business; Bridgepoint’s €800m sale of Portuguese agrochemical company Rovensa; and Carlyle’s sale of Dr Martens.

Curium would require around €1.4bn of debt and Rovensa’s debt could total around €500m, while Dr Martens is perplexing bankers given varying Ebitda levels of anywhere between £100m-£170m, depending on adjustments.

Bankers are considering loans and bonds denominated in euros and US dollars on most of the buyout situations in a bid to tap as much liquidity as possible to create competitive tension and the best outcome for any borrower.

And while lenders are eager to underwrite, they will be mindful of the “new normal” and seek increased fees, higher pricing and better flex protection on any deal. They will also be keenest on businesses that have weathered the coronavirus storm well.

“We have announced in January of this year that we plan to divest the Domestic Appliances business, and that we will start the disentanglement process, which is expected to take a total of 18 months. We expect to start engaging with interested parties only after the summer,” a spokesperson for Philips said.

Unilever declined to comment, BICS and Promixus were not immediately available to comment. (Editing by Christopher Mangham)

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