July 18, 2019 / 3:57 PM / a month ago

European lenders play high stakes with P2P loans

LONDON, July 18 (LPC) - European leveraged loan bankers, desperate for fees as a result of the ongoing low-deal market environment, are keen to lead more lucrative public to private financings, but the collapse of a handful of recent deals has resulted in some signs of frustration among lenders.

A large number of take privates in the market have been welcomed by loan bankers, attracted by what are typically larger financings than traditional buyout deals. Because volumes are off, banks are already behind budget.

“It is a high stakes game and high tariff dive. It is difficult to pull off but if you do get it right it is very rewarding,” a syndicate head said.

However, there is a lot of work banks have to undertake to prepare the underwritten financings and there is a greater risk of the acquisitions falling though compared to traditional buyouts.

In May, banks dropped a €2.72bn leveraged loan financing for German online classifieds group Scout24 following a failed takeover bid, missing out on an approximate €28m fee that further impacted a depleted 2019 budget.

“Scout24 was so so so frustrating,” a second syndicate head said.

Elsewhere, British packaging company RPC Group agreed to a higher takeover offer from plastics maker Berry Global Group in March, worth £3.34bn, and ditched a lower bid from Apollo in a blow to underwriting banks backing Apollo’s bid.

Looking to the future, potential sizeable deals include a £5.91bn acquisition of UK theme park operator Merlin Entertainments; a £1.91bn buyout of car auctioneer BCA Marketplace; a US$3.7bn acquisition of US auction house Sotheby’s; KKR’s €6.8bn offer for German publisher Axel Springer; an €885m acquisition of sustainable food provider Koninklijke Wessanen; a US$3.3bn acquisition of British satellite company Inmarsat; and a US$4bn acquisition of WPP’s data analytics unit Kantar.

Car auctioneer BCA Marketplace is returning to Europe’s leveraged loan market with a £1.387bn financing to back its £1.91bn acquisition by British private equity firm TDR. Banks are eager to get the financing done, frustrated by a failed takeover bid by Apax just last year.

Apax is also part of a consortium including US-based Warburg Pincus, Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan Board that is proposed to acquire Inmarsat.

The Competition and Markets Authority said on July 16 it was looking whether the proposed acquisition of Inmarsat would affect the competitive landscape, with the watchdog inviting interested parties to come forward with their comments by July 29.

“No one is getting excited at this stage. It will have to run the process (on Inmarsat) so there is no certainty,” a senior banker said.

FOCUS ON FEES

Under-budget lenders have been aggressively competing for deals in 2019 in order to win business, eroding any ability to push for higher fees on the more risky take private deals. Fees on a P2P are typically around 1.5%, the same as an LBO underwrite.

Given that an underwrite for a P2P takes more resources compared with an LBO as banks don’t have access to the same level of due diligence on a public company as they do in a private situation, the pressure for the deal to succeed grows higher.

“In a private situation a bank has scrubbed every aspect of a business. In a P2P you hardly ever get the same access to information so you are doing it slightly blinded, which makes it harder for people to do the work and riskier for the banks. It is one big shot at a time but worth the effort when you get it right,” the first syndicate head said. (Editing by Christopher Mangham)

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