New deal, old debt

Offering a glimmer of hope to a paralysed leveraged buyout market, Charterhouse Capital Partners secured £250m of debt for the £553m leveraged buyout of Edinburgh-based energy and research consultancy firm Wood Mackenzie from Candover.

The deal marks the largest exit of a European private equity firm in 2009, and has many private equity GPs hoping this will be the catalyst for further movement in the LBO market.

However, the industry seems to have jumped the gun a bit. Although Charterhouse did manage to clinch debt from Nomura (the bank’s first European leveraged finance transaction since the start of the banking crisis), HSBC and HBOS, the lenders simply opted to replace an earlier staple financing provided by Lloyds. As no new debt was secured, optimism regarding a return of the LBO model seems premature following a deal that was essentially refinanced.

The low debt ratios of 3x EBIDA on senior leverage and 5x EBIDA on total leverage, and the fact that more equity than debt was used in the deal, are all indicators of the uphill battle firms face while trying to complete deals.

Mark Vickers, a finance partner in law firm Ashurst that advised Charterhouse on the Wood Mackenzie deal, believes the exit is not a beacon of hope for the industry: “I don’t think this is an indicator of green shoots to come. While the funding structure and pricing may represent new style ‘market terms’, it does not of itself signal a resurgence of the LBO market. It is certainly a pathfinder deal but it does not necessarily herald the arrival of the main task force.”

Patrice Maffre of Nomura, who was also part of a team that advised Charterhouse, disagrees with Vickers and thinks that the completion of the deal is a clear sign that the LBO model is returning. “The banks that were involved were unanimous in their decision to take part in the deal and are very pleased by the refinancing terms. All of this will give them confidence to take part in similar deals in the future. The market is still challenging but with the right asset and the right client banks are willing to take part in these deals.”

Indeed it appears that the banks’ decision to remain in the deal has more to do with the buoyant nature of Wood Mackenzie’s business than a sign of a return of the LBO market. The energy consultancy firm was considered the jewel in the Candover crown as it provides services to the oil and gas industries that have continued to thrive despite the downturn. Last year, its sales increased from £79.7m to £97m, while earnings rose from £28.6m to £38m.