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| Polkomtel/Zygmunt Solorz-Zak | |
| Value | Z18.1 billion ($5.4 billion) LBO |
| Global coordinators | Deutsche Bank, Crédit Agricole |
| Bookrunners | Deutsche Bank, Crédit Agricole, Royal Bank of Scotland, Société Générale |
| return to the Emerging Europe Deals of the Year index | |
Of all the emerging regions, Central and Eastern Europe suffered the most for the sins of its allegedly more advanced neighbours last year. As the eurozone’s troubles escalated, fear of contagion sent investors running for cover and all but the strongest names found themselves shut or priced out of the global capital markets.
Against this backdrop, the few transactions that did make it through look all the more impressive – and none more so than the leveraged buyout of Polish mobile operator Polkomtel by local entrepreneur Zygmunt Solorz-Zak. Not only was it the only M&A deal of any size to come out of the region – barring the Kremlin-sponsored consolidation in Russia’s potash sector that brought together Silvinit and Uralkali – but, at Z18.1 billion ($5.4 billion), it was also the largest LBO from any part of Europe since before the financial crisis.
As with any completed transaction last year, luck inevitably played a part in its success. For one thing, the lengthy bidding process – in which Solorz-Zak saw off some of the biggest names in global telecoms and private equity including Apax Partners, Bain Capital, Telenor and Teliasonera – ended on June 30, enabling the underwriters to put together more than two-thirds of the financing package before credit markets seized up in September.
The sheer number of participants in that process also helped. “Almost all European and international banks had their credit approvals in place before participating in the process because they were supporting either one or the other bidder,” says Miklos Kormos, head of corporate finance for CEE, Greece, Israel and Turkey at Deutsche Bank, which along with Crédit Agricole and local boutique Trigon acted as adviser to Solorz-Zak. “We were lucky because the eventual winner could benefit from this to bring these banks into the syndicate.”
Yet good management played an equally important role, in both securing and financing the acquisition. Market participants agree that the deal clincher for the sellers – strategic foreign investor Vodafone and Polish state-controlled entities KGHM, PGE and PKN – was not just the size of the bid but also its substantial equity component.
The majority of the more than €1 billion equity cheque – the largest ever written by a Polish entrepreneur – had been raised by Solorz-Zak in 2010 in anticipation of the sale announcement, through the merger and dividend recapitalization of his leading free-to-air and digital Polish television stations, Polsat Cyfrowy and Polsat. This was subsequently beefed up by Z1.35 billion in the final stages of the bidding process via a sale of part of Solorz-Zak’s holding in Polsat Cyfrowy in an accelerated bookbuild, making for a conservative senior-secured leveraged ratio of 3.1 times in the final bid.
That in turn was a key factor in ensuring clamorous demand from banks in Poland, elsewhere in Europe and beyond to participate in the syndication process. The four international underwriters – which included Royal Bank of Scotland and Société Générale as well as Deutsche and Crédit Agricole – had initially assumed that they would need to go to the bond market to finance half their Z13.7 billion commitment. However, with the first two loan tranches attracting 1.7 times oversubscription that was rapidly reduced to leave an unsecured bridge of just €900 million by the end of September.
Even more impressively, all but €118 million of the eventual three loan tranches was raised in zloty, easily dwarfing any previous financing in the Polish currency. Much of the transaction went to local banks and their European parents, but the 30 institutions that comprised the final syndicate also included global players from the US and Asia. The European Bank for Reconstruction and Development also lent its weight to the deal, taking a €200 million equity stake in the closing stages.
The launch of a high-yield bond to complete the transaction was delayed by market volatility but was successfully completed in late January, marking the reopening of the CEE market for higher-beta corporate names.
So smooth was the financing process that with the benefit of hindsight it is tempting to see this as a deal that couldn’t fail, given Solorz-Zak’s local connections, the strength of the Polkomtel brand and the depth of liquidity in the Polish banking market. Yet as Simon Meldrum, director of CEEMEA loan syndicate at RBS, points out, its success was by no means a foregone conclusion.
“Because the Polkomtel LBO has been a massive success people forget just how difficult the outlook was in June and how the markets deteriorated over the summer,” he says. “There were a number of leveraged deals going on at the same time that had a very difficult reception and there was a lot of speculation that as a leveraged deal outside western Europe with two bridges to high-yield bonds this was a step too far.”
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Emerging Europe |
| Polkomtel/Zygmunt Solorz-Zak |
| Global Ports |
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