| NEW YORK, April 28
NEW YORK, April 28 US companies have lined up at
least US$42.5bn of loans to back a flurry of mergers in sectors
ranging from healthcare to food and software in the second
quarter as corporations try to grow by acquisition.
Becton Dickinson’s US$24bn takeover of C R Bard in the
investment grade medical device sector is the biggest of the
year to date as the pipeline kicks back into life after a thin
Near record stock markets and strong investor demand for
debt are fuelling transactions that had been on hold due to
volatility created by the US presidential election late last
“Company valuation multiples are elevated given the stock
market, but rather than wait to realize growth, companies are
willing to buy it through M&A," said Robert Smock, head of
corporate advisory at MUFG.
Both investment-grade and leveraged companies have been on
the acquisition trail as a pro-business climate prevails and
many are raising loans to back purchases.
US meat processor Tyson Foods is buying packaged sandwich
supplier AdvancePierre for an enterprise value of US$4.2bn
including the target’s debt, US paint maker PPG Industries
raised its bid for Dutch rival Akzo Nobel to US$29bn,
Luxembourg-based JAB Holdings agreed to buy Panera Bread for
US$7.2bn and German healthcare group Fresenius will acquire US
generic drugmaker Akorn for US$4.75bn.
“It feels as though this is a very good time to be selling
assets,” said Jeff Cohen, co-head of global leveraged finance
capital markets at Credit Suisse. “The credit markets are so
constructive right now, and there is a large pool of private
equity buyers along with strategic companies having large
amounts of cash.”
M&A volume is closely tied to stock market performance and
CEO sentiment, Smock noted.
“Given that the stock market is touching records and CEOs
are generally constructive on business conditions, I expect
continued support for M&A,” he said. “That said, we still must
acknowledge the twin dark clouds of being far along into the
business cycle, and geopolitical uncertainty.”
Financings for the current batch of deals include a
US$15.7bn bridge loan to support the Becton/Bard deal, with
Citigroup as the sole lead arranger and bookrunner. Tyson Foods
has also secured committed bridge financing from Morgan Stanley
for the AdvancePierre deal.
The JAB/Panera financing details are expected shortly,
bankers said, and PPG said in a regulatory filing that Goldman
Sachs was preparing a full financing package to facilitate its
proposed tie-up with Akzo.
Lending to highly-rated companies is dominating the current
round of M&A, which was kick started in early April by US drug
distributor Cardinal Health’s US$6.1bn deal to buy Medtronic’s
medical supplies units. The bid materialized days after Abbott
Laboratories agreed at a lowered US$5.3bn price to its
long-awaited purchase of diagnostic testing company Alere.
Becton Dickinson then piled in with the April 24 news of its
acquisition of C R Bard, backed by the US$15.7bn bridge loan.
More deals are in the works. This week Cerberus was reported
to be considering a bid via grocery store chain Albertsons for
Whole Foods Market, which has a market cap of just under
The current pace of M&A is already topping an anemic first
three months. Investment-grade companies raised only US$11bn of
new money for acquisitions in the first quarter, which is the
lowest quarterly volume since the fourth quarter of 2012,
according to Thomson Reuters LPC data, but this is set to rise
in the second quarter.
“Investment-grade lending tends to follow M&A volumes, and
large-scale M&A has taken a relative pause since the elections,”
said Jeff Nassof, a director at Freeman Consulting Services.
“M&A market fundamentals are still solid though, so it's
possible the Becton Dickinson/Bard deal triggers another wave of
deals, and another wave of bridge financings.”
Leveraged M&A has been slow and steady but has lacked the
blockbuster deals that investors have been calling for. The
US$51.3bn of new money extended for leveraged M&A in the first
quarter was the lowest quarterly tally since US$35.6bn in the
same quarter four years ago, LPC data shows.
Investors are snapping up the few multi-billion-dollar
loans. This week, UK financial software provider Misys, which is
buying Canadian fintech company DH Corp, increased a loan
package to about US$6.2bn from US$5.7bn after raising the dollar
tranche of the dual-currency deal.
Blackstone in April financed its buyout of Aon Hewitt’s
technology-enabled benefits and human resources platform Tempo
with an increased US$2.7bn loan, after reducing a bond and
cutting loan pricing during syndication to 300bp over Libor from
a spread of 325bp.
If sponsors can find a way of beating strategic corporate
buyers flush with cash, even bigger buyout deals could be done,
“I believe in today’s market environment that a US$20bn LBO
is very achievable,” Cohen said.
“Around US$10bn-US$15bn of debt financing for a deal in the
non investment-grade market would be very well received,” he
said. “And after seeing that deal get done, I’m sure investors
would ask how quickly is the next one going to come out?”
(Reporting by Lynn Adler and Jonathan Schwarzberg; Editing By
Tessa Walsh and Jon Methven)