June 13, 2018 / 4:06 PM / a year ago

Envision US$9.9bn leveraged buyout by KKR adds to private equity deal bonanza

NEW YORK (LPC) - Private equity firm KKR & Co’s US$9.9bn leveraged buyout (LBO) of physician service provider Envision Healthcare has helped boost private equity deal volumes to levels not seen since before the credit crisis.

Global private equity-backed merger & acquisition (M&A) volume stands at US$191.7bn this year, which is up 39% over last year at this time and the highest level since 2007 when volume had already topped US$350bn by June 11, according to data from Thomson Reuters Deals Intelligence.

The buyout flurry comes as private equity firms look to take advantage of supportive credit markets, coupled with a record amount of dry powder available for purchases. In addition, bankers have cited strong fundamentals as corporate tax reform has propelled the economy.

The deal, which was announced Monday, marks KKR’s second multi-billion acquisition within two weeks after announcing the US$8.5bn purchase of business software provider BMC Software on May 29.

In addition to the KKR deals, private equity firm Blackstone earlier this year announced that it had agreed to buy a 55% stake of Thomson Reuters’ Financial and Risk business in a deal valued at US$20bn. The transaction is backed by a US$13bn financing, which will be the largest LBO-related credit since 2013 when food maker HJ Heinz lined up US$14.1bn to support its acquisition by conglomerate Berkshire Hathaway and private equity firm 3G Capital.

Blackstone is buying a 55% stake in Thomson Reuters’ F&R unit, which includes LPC and IFR.


Solid economics and certainty about the new administration in the US has created a risk-on environment where private equity sponsors have been more willing to commit to larger endeavors.

As a result, M&A activity this year has broadly favored the larger transactions such as those seen in 2015-2016, said Marc-Anthony Hourihan, co-head of Americas Mergers and Acquisitions at UBS.

“It’s really back on to the elephant deals – the US$10bn and up,” Hourihan said.

Buyout financing in the US stands at US$22bn so far during the second quarter with US$6.1bn in progress, according to Thomson Reuters LPC data. LBO volume in the first quarter totaled US$22.6bn. For the first half of 2017, volume reached US$58.8bn.


The Envision financing will add to these totals, but it is not expected to be offered to investors until after Labor Day, a banking source said.

Envision’s buyout is expected to be financed with US$5bn of first-lien loan debt and US$2bn of senior notes, the source said. This will put leverage at the company in the 7.1 times to 7.4 times area with adjustments.

Another source familiar with the purchase said leverage will be closer to 7.5 times, though pointed out that the company has historically been able to deleverage quickly as maintenance capital expenditures totaled 2% of revenues in 2017.

“It’s a people business and has lots of free cash flow,” the source familiar said.

The deal has already captured the eyes of investors who are waiting to look at the financials for themselves.

“It will get a lot of attention, but it’s a lot of leverage,” said one investor.

The buyout is one of many recently with leverage well above the 6.0 times level that federal regulators had said would call for additional scrutiny, unless all senior debt or half of all debt could be paid down within five to seven years, according to federal leveraged lending guidance implemented in 2013.

Comptroller of the Currency Joseph Otting reinforced last month that banks can step outside the guidelines if they proceed judiciously and have the capital to safely do so.

Citigroup, Credit Suisse, Morgan Stanley, Barclays, Goldman Sachs, Jefferies, UBS, Royal Bank of Canada, HSBC, Mizuho, and KKR Capital Markets are providing the financing for the Envision deal.

Envision and KKR declined comment.

Reporting by Jonathan Schwarzberg; Editing by Michelle Sierra, Lynn Adler, and Chris Mangham

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