The two largest buyout deals of 2009 have had one thing in common: seller financing. KKR’s $1.8 billion deal to buy Oriental Brewery and CVC Capital’s $4.4 billion deal to purchase iShares from Barclays were each made possible, in part, because the seller put up some of the capital.
According to the Times Online, the newly emerged rival bidders for iShares will likely have access to the same seller financing Barlays offered to CVC Capital. However, I think if they can find their own financing before the June 18 go-shop period runs out, they will have an advantage.
Surely Barclays can’t be all too excited to put up 81% of the proceeds it will receive from the deal, with a pledge to keep 50% of that on its books. Reuters columnist Margaret Doyle wrote, “The current terms hark back to the “cov-lite” days of private equity, where banks extended credit without strict covenants.”
So to be taken seriously, the reported rival bidders, BC Partners, Apax Partners and Bain Capital, would have to top CVC Capital’s $4.4 billion offer by at least the $175 million breakup fee, which would elevate the bid to greater than 10x Ebitda. On top of that, they’d want to provide their own, committed financing. Both of those things seem like big hurdles in today’s M&A market. Then again, that a bidding war alone has broken out in not one, but two deals (see also: SumTotal) in the past week is remarkable. Add that to the fact that the $175 million breakup fee on iShares is higher than the majority of deals getting done these days, and M&A is starting to look fun again.