Swedish private equity firm EQT and the Singapore government are buying German publisher Springer Science and Business Media from its private equity owners in a forced sale for a knock-down price in a sign of reawakening activity in the leveraged loan market.
The deal values Springer’s equity at around £100m to £150m, two sources told Reuters this week, giving an enterprise value of less than €2.4bn — little more than Springer’s €2.16bn debt.
The deal, which is one of the biggest European buyouts of the year, allows owners Candover and Cinven to exit the over-indebted business they have owned since 2003 before loans fall due for refinancing early next year.
The forced exit underscores the problem of excess debt that continues to haunt the private equity industry and banks’ willingness to finance this transaction hints at more forced sales in 2010, bankers said.
Barclays, Goldman Sachs and UniCredit have underwritten €1.27bn of senior debt and a €454m mezzanine loan to finance the deal, a banker close to the deal said.
The size of the deal shows life returning to the leveraged loan market and the combination of banks’ returning risk appetite and investor demand should lead to more buyout activity in 2010, several bankers said.
EQT, closely linked with Sweden’s powerful Wallenberg family and its Investor group, said on Friday it would buy 82% of the world’s second-largest scientific, technical and medical publisher, leaving Singapore’s GIC Special Investments with an 18% stake.
Reuters reported on Wednesday that EQT would scoop up Springer after a long auction.
The two buyers are supplying €548m of equity, banking sources said.
Private equity firms Candover and Cinven created Springer through the €600m acquisition of Kluwer Academic Publishers from Wolters Kluwer and the €1bn acquisition of BertelsmannSpringer from Bertelsmann six years ago.
The two firms took advantage of hot debt markets to refinance the business and pay themselves handsome dividends on three occasions.
Springer’s new senior loan is priced at 474-500 basis points and the mezzanine loan pays a margin of 11.5% in a combination of cash and Payment-In-Kind interest, the banker close to the deal said.
The loan has call protection and is one of the first European loans to feature a LIBOR/EURIBOR floor in addition to the interest margin that ensures a guaranteed return for investors, he added.
A €300m term loan B and the €454m mezzanine tranche has already been placed and investors are being offered fees of 2-3% through an Original Issue Discount of 97-98, the banker said.
The value of Springer’s loans rose in the European secondary loan trading market this week as investors priced in the likelihood of repayment at par or face value.
The company’s euro term loan A tranche climbed 5.3% to 98.5% of face value and the second lien tranche rose 7.7% to 97% of face value, according to Thomson Reuters LPC data.
Springer publishes print and electronic books, technical and medical journals and hosts scientific databases. Its titles include the Journal of Supercomputing and the Encyclopaedia of Mathematics and the company is particularly strong in Germany.
Candover and Cinven were advised by Goldman Sachs and UBS. EQT was advised by Barclays, Deutsche Bank and UniCredit.