The refinancing boom may be over, but deals in Eastern Europe can still get done even now.

With credit markets reeling from severe indigestion, financial engineers at European private equity firms are having to rethink their exit strategies. Recapitalisation, that breadand-butter money spinner of the buyout boom, suddenly looks a very difficult technique to apply, and there is a consensus among industry watchers that dividends paid to financial sponsors on the back of leveraged refinancings will be few and far between in the coming months.

That's not to say there will be none. Depending on a company's credit quality, or indeed its physical location, there may always be exceptions to the new no-recap rule even if the debt market woes get worse before they get better. Once such exception occurred in September and featured a private equity portfolio company in Poland.

Recapitalising Aster, a telecommunications company controlled by Mid Europa Partners, was no mean feat, according to those involved in the deal. “In pretty bad conditions for the debt markets, this was difficult to pull off, but the company's performance was sufficiently strong to justify the recap,” said Matthew Strassberg, a London-based partner at Mid Europa.

Aster and its sponsors managed to organise a €415 million package comprising of senior debt, mezzanine loans and payment-in-kind instruments. Led by Credit Suisse, it was Poland's largest transaction of its kind to date. According to Robert Kolodziej, the successful completion of the deal enabled Aster to fund “a substantial distribution to shareholders”, amidst other objectives.

In an interview, Strassberg implied that he didn't think the same deal could have happened in Western Europe at the moment. “We are fortunate that central and eastern Europe has been insulated from the direct hit from problems in the credit markets, but the region has not benefited in the same way from the froth. We were never able to get terms available in the west. Yet because CLOs have not played such a role for financing eastern European deals, there is not the same liquidity problem,” he said.

The refinancing marks another milestone in the eventful history of Mid Europa's ownership of the business. The firm first backed the business in 2003 but sold its interest to its co-investor, the European arm of Hicks Muse Tate & Furst a year later. When Hicks Muse Europe became Lion Capital, its legacy portfolio was sold off and Mid Europa bought Aster back.

Following the refinancing, Aster is geared to 7 times current EBITDA of €200 million.

Advent International has bought insurer Domestic & General for £524 million (€774 million; $1.1 billion). Advent's acquisition represents one of the few major take-privates worldwide since the problems in the debt markets arose in July and the first in the UK. The previous UK public-to-private deal was Duke Street Capital's acquisition of dental chain Oasis Healthcare, which it bid for in July, and which went unconditional in August. Advent will pay £14.25 per share, representing a 25.7 percent premium over the company's share price in May, when the company first revealed there was an interested bidder.

UK private equity firm Hutton Collins has taken a 25.1 percent stake in Everest, a UK home improvement company, valuing it at £150 million (€222 million; $301 million). The investment is part of a refinancing in which management has increased its stake overall from 11 to 25 percent. Entrepreneur Brian Kennedy, meanwhile, has reduced his shareholding from 66 percent to 43 percent. Everest provides replacement windows and doors, fitted kitchens, conservatories and other domestic products. The firm had turnover of £140 million and profits of £16 million in the year ending October 2006. The deal includes a debt package of £100 million provided by HBoS.

Kelso Place, the London-based turnaround specialist, has partially exited Sepura, a digital communication specialist. Kelso sold a 27.4 percent stake via an initial public offering for £42 million (€62 million; $85 million). Based on the valuation of the stake, Kelso Place has achieved a 183 times return and 225 percent IRR over five years. The IPO was carried out two months ago, but the return could only be revealed following a ‘green shoe’ issuance, which raised an extra £5 million. Kelso Place bought Sepura in 2002 for a nominal £1 through a buyout from The Simoco Group when it entered administration.


Rank Date Status Company Key Buyer(s) Value ($m)
1 04/20/07 Closed Alliance Boots pic Kohlberg Kravis Roberts $24,788
2 05/04/07 Pending Altadis SA CVC Capital Partners, PAI Partners $23,064
3 04/10/07 Pending Sociedad General de Aguas Gestora de Finances per Emprenedors, $6,958
4 05/21/07 Pending EMI Group pic Terra Firma Capital Partners $6,622
5 03/29/07 Pending Iberia Lineas Aereas de Agrolimen Inversiones, British Airways, $5,479
Espana SA Inversiones Ibersuizas, TPG, Vista Capital
de Expansión, SGECR
6 05/10/07 Pending Actavis Group Hf. Novator Partners $4,677
7 01/24/07 Closed Vivarte Charterhouse Capital Partners $4,34i
8 04/18/07 Pending Airwave O2 Ltd. Macquarie Communications Infrastructure $3,872
9 01/26/07 Closed Molnlycke Health Care Investor AB, Morgan Stanley $3,681
10 05/14/07 Closed Endemol Holding N.V. Cyrte Investments, Gestevision Telecinco, $3,559
Goldman Sachs