ISS buyout spooks bond market

Bondholders may be close to calling time on buy-out firms’ debt financed spending spree, or then again they may just be concerned about ISS’s record and plans concerning acquisitions.

EQT, the buyout firm backed by Sweden’s Wallenberg family, is acquiring the Danish cleaning company for around US$3.8bn in association with Goldman Sachs. ISS shares jumped nearly 30% on the news of the DKr470 per share offer via investment vehicle PurusCo.

Bondholders were nowhere near as supportive of the unsolicited approach, wondering where they will be left in the aftermath of the buyout. ISS’s outstanding 2014s plummeted to 78 from par last week, with the 2010s falling to the mid 80s.

The market may have been reacting to moves by S&P, which placed the company’s BBB+ credit rating on CreditWatch and warned of a potential multi-notch downgrade. It might also have been weighing the company’s track record for acquisitions, which will likely continue financed by debt and equity after the buyout. “ISS fits well with EQT’s strategy of investing in companies with growth potential. We believe we can help to accelerate the company’s strategy by investing further in organic growth and add-on acquisitions,” said Ole Anderson, a partner at EQT.

ISS has grown by acquisition to become the second largest operator in its market, having made around 100 small bolt-on purchases in the last year. Its plans for the future include focus on expanding its geographical platform.

The offer price represents a 50% premium over the company’s average share price for the last 12 months, prompting observations that the firms are paying a full price for the asset. “They could have acquired it for significantly less a few months ago,” said one investment professional with a focus on the Nordic region.

Loan market sources said they would not be surprised in the event of another bid. “I find it hard to think that the major buyout firms will let a deal of this size go through without even looking at it,” said one banker.

He added that such a scenario was not unprecedented, however. Texas Pacific’s pursuit of UK-based foam company British Vita has been dogged but unique.

Citigroup and Goldman Sachs are providing financing for the ISS bid, although the offer is not contingent on financing or due diligence. ISS’s largest shareholder, Franklin Templeton, has undertaken to accept the tender offer.

Despite the impending buyout, ISS is pressing on with its acquisitions. It recently acquired Doya Biologica, a Spanish water treatment company, which has sales of €3.5m.

ISS has benefited in Europe from the outsourcing of regular and specialised cleaning services. The company’s care home business has also been impacted positively by the aging population demographic.