Navigating Spanish public-to-privates

Cinven and BC Partners completed the €4.34bn buyout of Amadeus on July 25, inking Spain’s second and largest public-to-private with 97% shareholder support in a deal that dwarfed its circa €150m predecessor, Gestion de Parques de Ocio.

“The size of the take-private presented some uncharted territory for Spanish stock market regulators,” said Stuart McAlpine, the partner who worked on the deal for Cinven. “Additionally, the fact that we were dealing with three exchanges tripled the challenges of the transaction.”

Given Spain’s current legal framework, the private equity partners chose one of the most difficult jurisdictions to effect Europe’s second largest buyout of 2005. Costs, both regulatory and commercial, together with timing issues and uncertainties as to the outcome of the bid process, have made take-privates exceptional in Spain.

The essential difficulty is that a successful outcome cannot be guaranteed before the take-private process begins, according to law firm Lovells. It is also difficult for bidders to withdraw if an offer does not proceed as planned, largely because Spain has no squeeze-out provisions.

“The good news for private equity is that, due to harmonisation needs within the EU, it seems likely that Spanish regulations will soon include specific squeeze-out provisions, at least, in the context of takeover bids where the bidder acquires over 90% of the target,” said Jose Maria Balana, head of Lovells’ Madrid office.

The Spanish government has also shifted recently to a more flexible position, seeking to promote greater efficiency and competitiveness for the country’s financial markets. Additionally, market practice is running ahead of legislation, and there are a few other methods that can deal with dissenting shareholders in the same way as a squeeze-out.

Section 164 of the Spanish Corporations Act (Ley de Sociedades Anonimas), for example, consists of a reduction in share capital through selective amortisation of minority positions. This is in exchange for the payment of minorities’ share capital contributions.

BC Partners and Cinven are unlikely to need squeeze-out provisions at this stage in the Amadeus deal, but they did have problems with minorities along the way, according to sources in the debt markets. Minority shareholders in the travel technology and distribution business contacted law firm Soler Padro over issues related to independent valuation of the business. Dresdner Kleinwort Wasserstein carried out the necessary valuations, the sponsors said.

Vendors, then partners

Vendors do not normally remain strategic investors in a buyout scenario, but Amadeus broke the mould in that respect as well.

Societe Air France, Iberia Lineas de Espana and Deutsche Lufthansa set up a steering committee with separate banking advisers when they first decided to reduce their stakes in Amadeus. The auction began last August, with BC and Cinven gaining exclusivity in January. According to a source close to the auction, the private equity duo won out mainly on price grounds.

After securing the asset, the sponsors had to get used to the fact that the three competing players would be working alongside them as a single partner. “The vendor rarely remains as a strategic investor in buyouts. Another layer of complexity for the deal was that the airlines also have ongoing strategic and commercial relationships with Amadeus that they were keen to secure going forward,” McAlpine said.

The buyout was conducted through WAM Acquisition, a vehicle owned by the two private equity houses and the three airlines. For the year ended December 31 2004, Amadeus reported revenues of just over €2bn and net income of €208m.

Barclays, CSFB, Merrill Lynch, JP Morgan and RBS syndicated loan facilities for the deal at standard market pricing of 225bp to 325bp on the various tranches, although the B and C facilities are under par in the secondary market.

Leverage is around 4.5x senior net debt to Ebitda and 6x total net debt to Ebitda. The equity contribution for the buyout was €1bn. A €900m 18-month bridge facility may be taken out at some point before maturity, Cinven said.