BREAKINGVIEWS- EQT compromises to get Springer Science sold

Wed Jun 19, 2013 5:29pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Quentin Webb

LONDON, June 19 (Reuters Breakingviews) - EQT has had to compromise to sell Springer Science+Business Media [SPSBM.UL]. The Swedish buyout firm is offloading the world’s second-largest academic publisher to rival BC Partners [BCPRT.UL], for a decent-looking 3.3 billion euros ($4.4 billion). But it has been a slog. And the final structure implies an enduring gap on valuation.

The agreement came days after EQT and minority partner GIC insisted they would focus “exclusively” on a Frankfurt listing of the journal and book publisher. BC’s last-ditch, improved offer was clearly enough to change their mind.

The offer has an enterprise value of 3.3 billion euros. That equates to about 8.7 times the EBITDA Springer Science is likely to make next year. Reed Elsevier (REL.L) (ELSN.AS), an Anglo-Dutch rival, trades at about 9.3 times 2014 EBITDA. The modest discount is probably fair given Reed is bigger and more diverse.

Still, the outcome is far short of the 4 billion euros originally touted as a maximum possible price. And about 150 million euros of the price will be performance-related, people familiar with the matter say. These payouts will take years.

This arrangement is more common in fast-growth industries such as biotech. It suggests BC was never fully convinced by the sellers’ forecasts for the business. In addition, EQT and GIC will retain a minority stake, which helps reduce BC’s equity outlay.

This is the latest of several “dual-track” deals where PE owners have prepared both a sale and a flotation. That EQT pulled back from a listing, despite the difficulties with a sale, suggests it is cautious about markets. Perhaps recent market jitters meant that informal soundings with prospective investors were not promising. And selling out fully would take years, during which EQT would remain exposed to the risk of markets tanking or seizing up.

Despite the headaches, EQT and GIC have probably made a decent turn, having bought this business for a bargain price a little over three years ago. The exit underlines the fact that there is an art, as well as a science, to selling companies.

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CONTEXT NEWS

- BC Partners, the private equity firm, agreed to buy Springer Science+Business Media from Swedish rival EQT for about 3.3 billion euros ($4.4 billion). The price includes a “performance-related” payment, the two sides said on June 19. They expect the deal to close in August.

- Springer’s owners had also prepared to float the company in Frankfurt, and said on June 14 they would “focus exclusively” on an initial public offering (IPO). However, BC then came back with a revised bid at a “highly attractive valuation”, EQT said.

- EQT bought Springer Science in 2010. The private equity arm of the Government of Singapore Investment Corporation, known as GIC, also took a minority stake. Springer Science, which publishes scientific journals and books, made 341 million euros of EBITDA last year, on sales of 981 million. EQT and GIC will keep minority stakes.

- EQT press release link.reuters.com/teh98t

- Reuters: BC Partners buys Springer Science for 3.3 bln euros [ID:nL5N0EV0Q7]

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Annals of Initial Public Offerings [ID:nL5N0EI0YY]

- For previous columns by the author, Reuters customers can click on [WEBB/]

(Editing by Robert Cole and Sarah Bailey)

((quentin.webb@thomsonreuters.com))

((Reuters messaging: quentin.webb.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS BC/SPRINGER/

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