Bite-sized pieces

A recent large acquisition that included a large amount of debt shows that LBOs are not dead -- they just need more participants to be successful, writes Christopher Witkowsky.

The leveraged buyout is not dead, despite what some scaremongering headlines might have you believe. It's just changing.

Yesterday, Barclays Private Equity and Investcorp acquired Europe’s largest food and beverage vending machine maker N&W Global Vending for €800 million, using €600 million of debt in the deal.

So an old-fashioned leveraged buyout got done, the difference though is it took eight lenders to seal the deal. A year or so ago, one or two lenders would have gladly underwritten the full amount.

Christopher
Witkowsky

The model will likely gain momentum as some deals with large debt components involving only a single, or just a few lenders, are floundering, and some have found their way into the courts.

Most recently, National City, the Cleveland-based bank that has been acquired by PNC Financial Services Group with the help of the US government, backed out of financing a Kohlberg & Company take-private of Centerplate, a sports event caterer.

National City had agreed to provide $175 million of debt financing when the deal was forged in September, consisting of a $90 million term loan facility, a $60 million revolver and a $25 million letter of credit facility.

The bank later said turmoil in the financial markets that has taken place since the original deal was agreed “could reasonably be expected to have an adverse impact in a material respect on the successful syndication of the proposed senior credit facilities”.

Amid this chaos, the N&W acquisition stands as a beacon of light. Popular opinion has it that deals involving significant amounts of leverage are a fond memory of a bygone era. But if the N&W deal serves as a template for future transactions, debt will continue to drive LBOs — it just might simply be parceled out in smaller pieces.