February 13, 2020 / 3:53 PM / 16 days ago

Bankers line up billions in debt as M&A pipeline builds

LONDON, Feb 13 (LPC) - Bankers are preparing debt packages to back the next batch of M&A in the pipeline after a number of event-driven financings that kicked the year off to a strong start wrapped up, leaving a void that needs to be filled.

Processes are underway for mega deals including US-based cosmetics maker Coty, which is selling a US$7bn professional hair and nail care products unit, and Thyssenkrupp’s €15bn prized elevator division.

Other potential processes 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.

Lenders are eager to underwrite and put money to work following the success of several event-driven financings this year, including a US$2.16bn-equivalent loan financing Advent’s acquisition of UK defence and aerospace group Cobham; a billion pound-plus financing backing UK life sciences group LGC’s buyout; and a €685m-equivalent loan backing European biscuit manufacturer Biscuit International buyout by Platinum Equity.

FLYING HIGH With confidence high following the UK elections in December borrowers have noted that market technicals are in their favour and a myriad of opportunistic refinancings, repricings and dividends have dominated both the European and US leveraged loan markets, against a lack of new money deals.

“There have been some new buyouts but not enough to satisfy lender appetite. The pipeline is building but it could be better. If something is coming, everyone wants to be on it,” a senior banker said.

Private equity firm Permira has reached an agreement to buy Italian luxury sneaker brand Golden Goose and Bridgepoint is thought to have agreed to buy PharmaZell, a German supplier of active pharmaceutical ingredients.

Given it is Italian, Golden Goose is expected to be funded with high-yield bonds, Pharmazell could, however, be backed with around €350m of senior and subordinated leveraged loans, sources said.

Bids are due next week on Thyssenkrupp’s elevator division, in a stage 2a, which isn’t final bids but the stage just prior to that. Bankers are lining up a massive €2.5bn of unfunded facilities in addition to up to €7bn of funded debt to back that, which would give a major boost to investors that would be able to deploy meaningful amounts of capital.

With an Ebitda of around €500m, Coty would require a debt financing of around €3bn and the process is expected to kick off in the coming weeks. The unit includes brands such as Wella, Clairol, GHD and OPI.

Curium has a staple from JP Morgan of about €1.4bn or around 7.0-7.25 times the company’s approximate €200m Ebitda, sources said, and with first round bids having been submitted in January, it is now in due diligence phase.

“Coty is a big one and looks good but has some issues in terms of retail. However, banks could push quite hard on Curium given the sector, which is super niche, has high barriers to entry and virtually no compeition making it a really good business that people will like,” a second senior banker said.

With an €80m Ebitda, debt on Rovensa could total around €500m, while Dr Martens is perplexing bankers given they are varying on Ebitda levels of anywhere between £100m-£170m, depending on adjustments.

The shoe brand is well-liked though and perceived as immune in some ways to retail and fashion habits, in contrast to the reservations lenders have on Golden Goose.

“Golden Goose is a fad. Dr Martens however isn’t fashion, it is a lifestyle choice,” a third senior banker said.

Despite a growing number of deals in the pipeline, they are unlikely to launch quickly given bids are still going in on a majority of them.

In the meantime, public-to-privates or private bilateral deals, which haven’t been in the public domain could surprise the market.

“Some of this stuff takes forever to come to us but at least the pipeline is starting to build again after the mass of deals in January and February. The imminent pipeline is P2P or opportunistic,” the second senior banker said.

Editing by Christopher Mangham

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