The outlook for new buyouts in 2021 is a rocky one, with high valuations and increasing competitiveness undermining private equity sponsors' access to easy cash to get deals done. While large auction processes such as the sale of Unilever's tea business trundle on, sources suggest that public sales may only become more tricky as the year develops.
In some senses, acquisitive sponsors are enjoying the strongest of market conditions. They not only have a huge amount of dry powder to put to work themselves — with sources suggesting there was close to $300 billion of cash ready to be used in Europe at the end of 2020 — but they can also rely on funding from the debt capital markets, where huge amounts of liquidity are driving prices tighter. However, despite enjoying such ready access to cash, it remains far more difficult to source assets, as valuations are pushed to ever-higher levels.
"Auctions are difficult at the moment," said one private equity manager. "They're highly competitive, people can get very aggressive on price, and that can be uncomfortable. Valuations have got to very stretched levels."
For full-year 2020, the average purchase price on European buyouts rose to 12.55x EBITDA, according to LCD.
"We're definitely seeing fewer secondary auctions," said one senior private equity banker. "Sellers have certain price expectations now, having seen what they could get in the equity markets. We're seeing more bilateral deals come up."
With auctions becoming increasingly competitive against this backdrop, it's no surprise that sponsors are instead looking to private approaches or take-privates to source assets.
For private equity firms hoping to exit holdings, meanwhile, there are currently other, more attractive options than an auction process, and soaring valuations in the equity markets mean IPOs are increasingly popular. For example, Advent International has now announced it will list its Polish logistics firm InPost S.A., having put the business up for sale last year, with an IPO expected to value the firm at €7 billion to €8 billion, while Permira has also opted to float bootmaker Dr. Martens Ltd., having previously explored a sale process. Elsewhere, German beauty retailer Douglas, whose owners include CVC Capital Partners, is also now expected to be listed, while those close to CVC's recent acquisition of building-materials distributor Stark Group say that an IPO had been the main competition to the deal.
Canada
The sale of specialty pharmaceutical firm ADVANZ PHARMA Corp. Ltd. is ongoing, led by Jefferies. Carlyle, Nordic Capital and TDR have all been linked with the deal. Leverage of 5x-5.5x is expected, with a €1 billion to €1.5 billion financing package anticipated, split between bonds and loans.
France
Advent International is said to be exploring a potential sale of telecom services company Groupe Circet S.A., having acquired the firm in 2018. The process is said to be at a very early stage, and no banks have yet been mandated, according to sources.
PAI Partners is understood to still be exploring a sale of ELITechGroup S.p.A, which manufactures in-vitro diagnostics equipment, with Jefferies and Natixis advisers on the deal. The firm is expected to be valued at roughly €1 billion. PAI has owned the firm since 2017, when it bought ELITech from Ergon Capital Partners.
French utility firm Engie is looking to spin-off its client solutions business, with an IPO or auction being considered.
The sale of property broker IAD by Naxicap Partners is underway, with Lazard and J.P. Morgan advising. The company is being marketed off EBITDA of approximately €45 million to €50 million, according to sources.
Prosol, also known as Grand Frais, is to be put up for sale by sponsor Ardian and founder Denis Dumont. Morgan Stanley and Amala Partners are advising on the process. The French food retailer is to be marketed off EBITDA of around €180 million to €190 million, and the sale is expected to have an enterprise value of €2 billion to €3 billion.
Germany
A majority stake in Canyon Bicycles has been bought by Belgium's Groupe Bruxelles Lambert after the auction attracted interest from Carlyle and KKR. TSG Consumer Partners retains its minority share in the firm.
Italy
A consortium of CVC Capital Partners, Advent International and FSI is close to signing an acquisition of a 10% stake in the broadcasting rights of Serie A, the top flight football league in Italy, after the deal was approved last November. A rival bid from Bain Capital did not receive the backing of any clubs.
Elsewhere, BC Partners is reported to be in discussions about acquiring Serie A club Inter Milan, with China's Suning Holdings Group looking to sell a 40% stake for around €500 million. Suning would retain a stake and is expected to continue overseeing the running of the club. Goldman Sachs is advising on the process.
Netherlands
The potential sale of Koninklijke Philips NV's appliances business is said to have attracted the attention of private equity buyers including PAI Partners, Apollo, Advent International and CVC in the early stages, according to sources. Some reports suggest that Chinese buyers are now moving closer to the deal, with CDH Investments and appliance manufacturer TCL Technology Group said to be circling. The sale price is said to be over €3 billion.
Discussions are still understood to be underway after EQT's approach to telecoms firm KPN NV regarding a potential take-private. A deal, which would value the company at around €11.1 billion, according to reports, would be the largest ever for the private equity firm.
Poland
Modern logistics firm InPost is set to be listed in Amsterdam after an auction process launched last year. Sponsors including CVC, Hellman & Friedman, and Silver Lake are said to have been interested, but owner Advent International has instead opted for an IPO. The flotation is expected to value the firm at between €7 billion and €8 billion.
Portugal
First-round bids for packaging firm Logoplaste Consultores Técnicos SA were due earlier this month, after the asset was put up for sale by Carlyle. Names including Ardian, Apax Partners, BC Partners, CD&R, Cinven, Partners Group, Onex, OTTP and 3i Infrastructure have all been linked to the deal. A staple financing structure including senior and second-lien debt is said to have been provided by Barclays and Goldman Sachs. The staple has a total leverage of 5.75x based on EBITDA of €120 million.
Switzerland
The sale of Clariant AG's pigments business is still open, after the auction was relaunched towards the end of last year. Deutsche Bank is leading the sale. A price of up to CHF900 million (€830 million), or 8x-9x its earnings, has been suggested.
Advent, Carlyle, Partners, a consortium of Bain and Cinven, and chemicals group Lanxess are said to be circling chemicals firm Lonza Europe B.V.'s specialty ingredients business. The sale could have an enterprise value of more than CHF3 billion (€2.78 billion), based on EBITDA of around CHF300 million. UBS is leading the deal, which was launched in September. Source speculate that a buyout could lead to a bond financing at some point in the future, although all options are open.
United Kingdom
Auditing firm KPMG is looking to carve-out its restructuring business in the U.K., and the sale is said to have attracted the interest of private equity firms including ICG and Towerbrook Capital Partners. A deal could value the asset at more than £400 million, according to reports.
The sale of U.K. dentistry firm IDH Group Ltd is said to have attracted the interest of Bridgepoint and family-owned retailer Bestway. The sale is expected to value the firm at more than £700 million.
The spin-off of Unilever's tea business, which houses brands including PG Tips, Lipton and Lyons, is ongoing, with market participants noting that the carve-out of the asset was always likely to be a slow process. The unit could be sold for up to €6 billion to €8 billion, according to reports.
