News: Deals – September 2002

LBOs take centre stage
The second half of 2002 promises to deliver an upswing in European LBO transactions, following a record level of activity in July which saw the value of LBOs outstrip both previous quarters in 2002. A total of €15bn was committed to LBOs, ahead of Q2 and Q1, which managed €5.2bn and €8.9bn respectively.

Multi-billion Euro transactions for Madison Dearborn, which launched a successful €3.7bn public to private offer for Irish packaging firm Jefferson Smurfit, and Kohlberg Kravis Roberts’ €5.1bn acquisition of Legrand, one of two major deals carried out by the US firm, led the way in what was a bumper month for large buyouts.

It remains to be seen whether the high level of activity in July will translate into a lengthier upturn for the remainder, but the figures will have a positive impact on the annual total for 2002. The July level was nearly three times higher than the monthly average for 2001 (€5.75bn), and August, which counted Charterhouse’s €1.4bn acquisition of Coral and the €1.8bn purchase by Deutsche Bank and TDC Denmark, the telecoms company, of Cesky Telecom among its notables, proved to be an able successor.

The likelihood that July’s LBO activity will not be sustained over the remainder of 2002 should not detract from the enhanced role it has played in European M&A this year. Figures from Thompson Financial show that LBOs have accounted for around 11 per cent of the total value of mergers and acquisitions in the region so far this year, the highest figure on record.

Even a slowdown in LBO activity is unlikely to reduce the ratio of LBO transactions as the broader M&A market is set to remain depressed for the rest of 2002. The ongoing asset disposal programmes taking place at debt-ridden multinationals such as Vivendi, which yesterday announced a €10bn disposal strategy, will ensure that private equity firms have rich pickings in the remainder of the year.

CVC acquires UK retailer
European private equity firm CVC Capital Partners was the busiest house of its peers during the summer period, completing four deals with a total value approaching €2bn. The largest of the four, the purchase of UK retailer Halfords, saw the firm pay over £400m to acquire car and bike accessories from Boots, the chemist. The £427m price tag, of which £17m will be deferred pending performance targets, is below Boots’ original asking price of £450m.

Jonathan Feuer, managing director of CVC, said the acquisition was a good opportunity to buy a ?strong retail business with considerable national coverage. We believe that through improved operational efficiencies and expansion, there is considerable scope for growth and further development of the Halfords business.? Management will take a stake of up to 10 per cent in the independent company.

Barclays Capital provided both senior and mezzanine debt for the transaction, believed to comprise about two thirds of the overall consideration. CVC was advised by Clifford Chance (legal), PwC (accounting) and UBS (M&A).

EQT in German fragrance consolidation
Bayer AG has sold its flavours and fragrances manufacturing unit, Haarmann & Reimer, to EQT Northern Europe Private Equity Funds in a deal that will net the German chemicals and pharmaceuticals group €1.66bn. The N ordic private equity house, which operates in Germany from its Munich office, has also acquired shares in Dragoco, a competitor of Haarmann & Reimer, to merge the two Holzminden-based companies. The merger is subject to regulatory approval.

Financial details of the transaction have not been disclosed. EQT will hold a 76 per cent controlling stake in the new company, which will have €1.245bn in sales and 5,800 employees. Horst-Otto Gerberding, Dragoco’s CEO who will run the company, will bring a 58 per cent personal shareholding in Dragoco into the deal and end up holding a 22 per cent interest in the new business. NordLB, which currently owns four per cent of Dragoco, will own two per cent of the merged entity. Other shareholders in Dragoco, including Equita, a private equity investor controlled by the Quandt family, have agreed to sell their shares to EQT.

Hans Moock, a partner at EQT involved in the deal, said the opportunity to buy a large corporate orphan and merge it with a German Mittelstand company was rare and very pleasing for the firm. It is EQT’s largest investment to date, and will lead to EQT Northern Europe, its latest fund which closed last year on €2bn, being 60 per cent invested. If successful, the planned merger will mark a significant milestone in EQT’s development as an equity house operating outside its Nordic home market. In December 2001, the group made its first German investment, acquiring Leybold Optics from Zurich-based Unaxis Group for €166m.

Electra in €220m food wholesale deal
Midmarket private equity investor Electra Partners Europe has completed the purchase of BWG Group from Pernod Ricard. Electra, which had been working with PricewaterhouseCoopers Corporate Finance to identify opportunities in the wholesale industry for some time, agreed to pay €220m for the business. Around 30 per cent of the financing comes from equity funds advised by Electra. CIBC, the investment bank, is leading a consortium of debt providers arranging around €155m of senior debt, with AIB and Bank of Ireland participating.

BWG, which is a food wholesaler operating in the UK and Ireland where it also owns a number of retail brands, was put up for auction by Pernod Ricard last year in an effort to dispose of non-beverage interests. Pernod Ricard was being advised by SocGen, which ran the auction.

Prior to Electra being granted exclusive access to the company, private equity houses interested in buying the company included Hg Capital, Candover, Alchemy Partners and ABN Amro Capital, according to sources close to the deal. BWG, which in 2001 turned over €2.2bn and achieved earnings before interest and tax of €31m, is the fifth acquisition for Electra since the firm gained independence and raised a €1m buyout fund in 2000.

PAI in €i.5bn secondary buyout
PAI Management, the newly independent LBO specialist that bought itself out of BNP Paribas earlier this year, has purchased Elis, the textile rental business active in ten European countries, for €1.5bn. Elis was put up for sale by BC Partners, the European buyout specialist, which had first acquired the business in 1997 for an undisclosed sum. BC Partners was advised by Goldman Sachs.

Interest in the auction was strong. Haniel Textile Services looked at Elis as a potential trade buyer while Apax Partners, Advent International and Eurazeo were among the financial investors keen on the business. P AI’s equity c ontribution to the deal comes from the €1.8bn fund it closed earlier this year. The firm, which manages €6bn in total, owns several industrial assets including United Biscuits, Beaufour Ipsen and Elf Argataz.

JP Morgan acted as PAI’s financial advisor. Ashurst Morris Crisp in Paris provided legal counsel.

TDF marks first deal for Hutton Collins
France Telecom has taken a step towards reducing its €63bn debt pile with the sale of a majority stake in its Télédiffusion de France broadcasting division to Charterhouse Development Capital, CDC IXIS Equity Capital and the financial group Caisse des Dép^ts. The total price for TDF is €1.9bn, of which France Telecom will pay €250m for a 36 per cent stake in the holding company set up to acquire the broadcaster, giving France Telecom a net total return of €1.6bn. Mezzanine financing of €300m was co-arranged by Royal Bank of Scotland and Hutton Collins, which made its debut investment following the launch of its €600m mezzanine fund earlier this year. France Telecom said the investment made by the new shareholders will give TDF access to the financial resources needed to seize growth opportunities created by the advent of digital terrestrial television, outsourcing of wireless telephony infrastructures and the deployment of UMTS, as well as international development opportunities. The TDF assets being divested represented 2001 consolidated revenues of approximately €780m and EBITDA of about €250m.

Vestar in €230m Swedish buyout
Vestar Capital Partners, the US private equity firm dealing primarily in traditional mid-market buyouts, has closed its second European acquisition, buying brake systems firm SAB WABCO from Swedish-listed company Cardo for €230m.

Rob Rosner, European president of Vestar, described the €300m turnover firm as a representative deal for the company. ?For Vestar this is a classic MBO, acquiring a successful division of large multinational company that is selling profitable non-core operations. We target traditional, long-standing companies with quality management. Companies that are well-known within their local markets.?

The firm’s first European deal was the €140m acquisition of Zanussi Metallurgica from Electrolux in late June. Both deals meet the firm’s sweetspot, although were slightly smaller than its US target range. ?We’re looking at businesses in the €100m to 1bn turnover range. SAB WABCO has the potential to capitalise on the growing demand for train-based transport and the deregulation of former nationalised state transport systems.?

KKR, Wendel complete biggest Euro LBO
The Wendel Consortium, which consists of Wendel Investissement and US private equity firm Kohlberg Kravis Roberts, has completed a €5.1bn deal to acquire Legrand from Schneider Electric. The price tag, which makes it Europe’s largest ever LBO transaction, includes a loan note of €150m from Schneider and debt of €1.4bn. The sale was forced upon Schneider last year following objections from the European Union on its €5.7bn acquisition of Legrand in January 2001, questioning the impact the merger would have on competition in the European market. The agreement between the two parties includes a deal to annul the transaction in the event of the original anti-trust decision being overturned by the Tribunal de Première Instance in October, subject to a €180m break-off fee payable to Wendel.

The Wendel Consortium has secured debt financing for the acquisition from Credit Suisse First Boston, Lehman Brothers and The Royal Bank of Scotland. €2.2bn is being provided in bank debt and another €600m in high-yield bond financing.

For KKR, the deal represents the first leg of a European double. The firm also completed the €1.69bn acquisition of seven Siemens portfolio businesses. The assets, which Siemens bought off Atecs Mannesmann last year, include Mannesmann Plastics Machinery, the gas spring producer Stabilus, Demag Cranes & Components and the harbour crane unit Gottwald.

Charterhouse clinches Coral
UK buyout house Charterhouse Development Capital announced the £860m purchase of Coral Eurobet, the UK bookmaker that was put up for sale by Morgan Grenfell Private Equity 18 months ago. To fund the buyout, Lehman Brothers arranged a proprietary £610m debt package consisting of £400m of senior debt, £135m of mezzanine and $75m of PIK financing. Charterhouse put £272m of equity capital into the deal. Payment of £10m of the purchase price has been preferred. Lehman, whose M&A team advised the seller, also agreed to providing an £80m equity facility as well as £15m of working capital to Coral. Together with another £40m of equity that Charterhouse has earmarked for the business, Coral has £135m to fund future growth and acquisitions. The deal marks an important exit for Morgan Grenfell Private Equity, which is currently winding down its portfolio. MGPE had acquired Coral from Ladbroke in a £390m purchase.

Czech government selects successful Cesky consortium
The Czech government has accepted a €1.82bn bid from a consortium comprising Deutsche Bank and TDC of Denmark for the state-owned telecoms operator Cesky Telecom. This brings to an end the long-running saga over who would complete what is one of the largest private equity deals in Europe this year and Central Europe’s largest ever LBO. The Deutsche Bank consortium, led by the investment bank’s telecoms division, has agreed to pay €1.82bn for the 51 per cent stake, which is markedly below the government’s original target of €2.5bn, but is above some analysts’ estimation that the price could be as low as €1.6bn.

CVC, PAI close Provimi deal
PAI Management has completed its first deal following the final close of its €1.8bn PAI Europe III. The firm has teamed up with UK-based CVC Capital Partners to acquire a controlling majority stake in Edison subsidiary Provimi for €203m. Provimi, a French-based manufacturer of animal feeds, was sold as part of the Italian energy firm Edison’s effort to dispose its non-energy interests. The CVC-PAI consortium will pay €203m in cash for a 53.66 per cent stake, following which they will launch a tender offer for the remaining 42 per cent stake.

CVC gets Kwik-Fit at knock-down price
CVC Capital Partners has completed the acquisition of UK auto repair and car servicing chain Kwik-Fit for £330m in cash. CVC acquires Kwik-Fit from Ford, which had hoped to sell the UK repair chain for as much as £800m when it announced a strategic review last year. Ford, which paid £1bn for Kwik-Fit in 1999, will record a one-time, after-tax charge of appro xim ately $500m in the thir d quarter of 2002 related to the sale. Doubts were cast over the prospects for a sale following the announcement in July that discrepancies had been exposed in Kwik-Fit’s accounts to the tune of £3.4m. Ford will retain a 19 per cent stake in Kwik-Fit and remains on target to achieve $1bn in returns on the sale of its non-core assets. The sale was co-ordinated by Goldman Sachs, which had also advised Ford on the original purchase of Kwik-Fit.

Private equity syndicate to buy part of Fiat subsidiary
Fiat, the Italian industrial group which is under growing pressure from its bankers and shareholders to reduce its debt burden and pare back its marginal businesses, has agreed to sell half of its Teksid components manufacturing unit to an international group of private equity firms. The firms participating in the €460m deal are Questor Management of the US, the private equity operations of JP Morgan Chase and AIG and the Italian firm Private Equity Partners. The transaction involved €170m of cash and €E290m of assumed debt. The business, which produces aluminium auto components, is the profitable half of the Teksid unit and saw revenues of €866m for the last financial year (a two per cent increase on the previous year). The sale of the Teksid unit is set to reduce Fiat’s net debt of €5.8bn by a further €290m.

Property buyouts continue apace
Grantchester Holdings, the UK-listed property investor, is set to become the latest quoted real estate manager to be taken private following the announcement this morning of a recommended cash offer from management backed by Bank of Scotland and UK private equity firm West Coast Capital. Dundonald, a holding company set up by the Grantchester management team, has offered to pay £167.6m to take the property company private in a deal backed by the Grantchester board.

CVC buys Spanish utility assets
CVC Capital Partners, the European private equity firm, has agreed to acquire the high-voltage electricity transmission assets of Iberdrola, Spain’s second largest utility. The €577m transaction, subject to approval of the Spanish Ministry of Finance, gives CVC ownership of 4,700km of high voltage power lines, which Iberdrola will continue to operate until 2037. The group will also keep its fibre-optic cable network. CVC has been investing in Spanish buyouts for a number of years. Recent local investments include Grupo Zena, a multibrand food chain with over 300 outlets and Dorna, sports rights management company.

Burger King goes to TexPac consortium
UK drinks firm Diageo has finally completed the sale of its Burger King fast food chain to a consortium of US private equity firms comprising Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners. The sale price of $2.26bn is considerably lower than Diageo’s original target last year when it valued the firm at up to $4bn. The price is also slightly below the $2.3bn that analysts had predicted. A portion of the purchase price is also dependent upon Burger King Corporation satisfying certain performance targets in its financial year ended 30 June 2002.

IRRfc scores first part exit post-UBS
IRRfc, which manages the funds of Phildrew Ventures on behalf of UBS, has made a partial exit from Ward Homes, a portfolio company of Phildrew Ventures’ 5th Fund. The fund will retain a 20 per cent stake in the firm but says that it has realised its original investment in the regional house builder via this £67m secondary buyout involving management and Royal Bank of Scotland Debt Ventures. RBS is contributing £60m in senior debt and mezzanine to the transaction and will receive a 20 per cent stake in the company.

Carlyle and Welsh snap up QwestDex
A consortium comprising US buyout firms The Carlyle Group and Welsh Carson Anderson & Stowe has won the race to acquire the telephone directories business of Qwest Communications. The consortium has agreed to pay just over $7bn for QwestDex, beating off competition from Thomas H. Lee Partners, Bain Capital and Providence Equity Partner, which had bid for only part of the phone book operation. Qwest will receive an initial $2.8bn for QwestDex, which distributes 45m directories across 14 US states, with the remainder to be paid at a later date. The initial proceeds of the transaction will be used to amend the terms of a $3.39bn credit agreement. The $7.05bn price tag is slightly below original predictions of an $8bn-$10bn deal.