October was a busy month for The Blackstone Group, with the firm coming to terms in two separate deals totaling $4.7 billion. A spokesman said, Blackstone will remain tight-lipped about the details until the deals close, which is expected sometime later in the year.
For the larger of the two deals, Blackstone joined CVC Capital Partners, Merrill Lynch Global Private Equity and Texas Pacific Group, to back strategic buyer Spirit Group Ltd. The purchase price for British ale maker Scottish & Newcastle’s retail division is $4.2 billion, and the division consists of 1,400 pubs, restaurants and lodges in the U.K. This deal will bring Spirit’s total number of establishments to nearly 1,500, creating the largest company of its kind in the U.K.
Almost 80% of the transaction is made up of debt, which is being provided by Barclays, Citigroup, Merrill Lynch and Royal Bank of Scotland. Such heavy debt likely lays the groundwork for a sizable junk bond offering. Another Blackstone portfolio company Ondeo Nalco has offered $1.8 billion in high-yield bonds. Nalco was purchased by Apollo Management, Blackstone and Goldman Sachs Capital Partners for $4.2 billion from French conglomerate Suez S.A.
The combined projected EBTIDA of the pubs in the Spirit portfolio is expected to top $830 million. Last year, the Scottish & Newcastle pubs and restaurants generated sales of $1.7 billion.
The public-to-private deal is expected to be completed this month and as part of the deal, Spirit agreed to a long-term contract with Scottish & Newcastle, with the latter supplying beer and cider to its former pubs for seven years.
Spirit outbid rival strategics backed by various private equity shops including Cinven Ltd, Morgan Grenfell Private Equity and PAI Partners.
According to published reports, a tiff between Spirit CEO Karen Jones and the PAI-backed team allowed the Blackstone-led team to step up and eventually land the deal. Once the deal is finalized, Jones will head up the combined unit, coinciding with the departure of Bob Ivell, the head of Scottish & Newcastle’s pubs unit prior to the sale.
On October 6, the same day the Scottish & Newcastle deal was signed, Blackstone’s real estate fund teamed with strategic buyer Tanger Factory Outlet Centers Inc., to purchase nine factory outlet centers for $491 million.
The deal leans heavily on the equity side, with approximately 62%-$304 million-of the purchase price in the form of equity.
Blackstone and Tanger declined to comment on the deal, but did acknowledge Blackstone is majority owner of the venture, controlling 67% of the newly formed company.
The deal expands Tanger’s reach from 33 outlets totaling 6.2 million square feet to 42 centers with 9.5 million square feet.
The nine outlets added to the Blackstone-Tanger tandem are located in Alabama, Connecticut, Delaware, Illinois, New Hampshire, Oregon and South Carolina. Prior to the merger, Tanger had operated in 20 states.
Blackstone Real Estate Advisors has raised four funds, totaling $4 billion since 1985, and has made more than 100 investments in transactions totaling $150 million. -J.C.