LONDON (LPC) - A sale of German metering group Techem is underway and bankers are looking at financing options of up to €2.8bn to back an acquisition, banking sources said.
Macquarie acquired the company in 2007 for €1.5bn. Bidders are hoping to strike a deal to buy the company at a valuation of €3.9bn-4.2bn including debt or 11-12 times earnings.
Techem is expecting to post 2018 adjusted Ebitda of €350m on sales of €796m, the sources said.
First round bids in an auction process are due on April 5, which is expected to attract interest from a consortium comprising buyout firm CVC, Canada Pension Plan Investment Board (CPPIB) and Government of Singapore Investment Corporation (GIC) as well as another group that includes Ontario Teachers’ Pension Plan (OTPP) and the Caisse de dépôt et placement du Québec (CDPQ).
Swiss based private-equity investor Partners Group is also expected to bid, the sources said.
Macquarie and the bidders declined to comment or were not immediately available for comment.
CVC is the former owner of Techem peer Ista, which the buyout group sold to Hong Kong’s CK Infrastructure (1038.HK) last year in a €4.5bn deal backed with €1.95bn in debt.
Bankers are working on financing packages of up to 7.5 times Ebitda, the sources said.
Techem conducted a €1.75bn leveraged loan financing in July 2017 that comprised a €1.6bn term loan and a €150m revolving credit facility.
In an unusual move, the financing was offered with portability, which enables a financing to remain in place in the event of a sale. Certainty of funds can make an asset very attractive as typically a change of control triggers a loan repayment.
That 2017 refinancing, which also paid a dividend to shareholders of €150m-€200m, had leverage of 4.7 times net and 5 times gross.
In another unusual move, that portable financing enables around €1bn of additional debt to be raised on top of the existing €1.6bn term loan in the event of a sale, to push leverage as high as 5.5 times through the senior and 7.5 times in total.
“Raising additional debt on a portable loan? It is very unusual, it is extraordinary,” a syndicate head said.
Banks are working on the add-on financing options that are expected to include senior leveraged loans and subordinated debt, in the form of either second-lien loans, unsecured bonds or payment-in-kind notes.
The additional debt could be provided by the existing bank group that did the 2017 financing or new banks.
The 2017 financing was led by Deutsche Bank, JP Morgan, Bank of America Merrill Lynch and Macquarie, alongside Credit Agricole and UniCredit.
“At the time Macquarie didn’t want to max out leverage and do the recapitalisation at 7.5 times so they deliberately baked in the ability to go to an expected buyout leverage of 7.5 times. It is unusual,” a senior banker said.
Typically financings are only portable at the same leverage or at a lower leverage than they closed at.
Macquarie agreed with lenders that the portable financing could be leveraged higher in the event of a sale, without needing lender consent, in a bid to keep Techem as attractive as possible if a sale process were to go ahead.
“If Techem was too highly leveraged a few potential buyers might not have wanted not to look at it. The owner was assessing all strategic options and wanted the field as open as possible. They wanted to make it as attractive as possible to as many buyers as possible,” another banker said.
Another option would include a new buyer putting in place a new financing altogether, shunning the portable financing. This is most likely to be the case if a corporate or infrastructure buyer wins the asset.
(This version of the story was refiled to add missing words in paragraph 2)
Editing by Christopher Mangham