Given the negative sentiment that has plagued Europe in recent months, the announcement of an ambitious €25 billion LBO financing incorporating a large slug of bank debt for Spanish infrastructure firm Abertis has come as very welcome news. The deal, which harks back to the days of the jumbo LBOs before 2007, could involve the firm being bought out by a consortium of La Caixa and Spanish construction group ACS (which together own 55% of Abertis) and private equity firm CVC. That fact that such a debt fundraising is even being considered has to be good news – and for a Spanish credit to boot.
CVC is rumoured to be considering injecting as much as €1 billion into the deal and roughly 14 banks are believed to be in negotiations to join it, led by Mediobanca. If this sounds extremely ambitious in the current climate that is because it is. Infrastructure is a highly attractive asset class for private equity but not surprisingly the bidding group is doing all it can to keep Abertis’s investment-grade rating and will look to sell assets to achieve this. But a debt-raising of this size is still an enormous undertaking – the most recent jumbo deal to be attempted, a $15 billion Blackstone-backed buyout of Fidelity National Information Services – collapsed when the private equity buyer baulked at the price in a reassuring sign of self-discipline. But the fact that deals of this size are again under consideration shows not only how much the loan markets have improved but also indicate how much money private equity firms have to put to work.
In Europe they need to invest €80 billion over the next three years and are still fundraising. The investment rate in the first half of this year was just €7 billion to €8 billion, so there is a long way to go. But last month was the largest month by volume of private equity-backed M&A in Europe since December 2007. Volumes were boosted by the $4.6 billion private equity backed acquisition of Tomkins by Onex Corp and Canada Pension Investment Board but nevertheless business is up six-fold from this time last year. News emerged at the end of July that UK fitness chain Virgin Active is considering a private equity sale in a deal that could be valued at £1 billion. But with firms facing intense investment pressure there is always the risk that discipline will vanish. The average multiple for deals in the mid-market so far this year is roughly 9.9 times – astonishing given the economic uncertainty in the region. If this kind of bidding creeps into larger deals – albeit with equity making up a far bigger percentage of the funding – then these firms will have only themselves to blame.
