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UBS Offers Capital To Win Private Equity Deals

UBS will provide more financing to European private equity borrowers, to defend its top league-table standing for advisory on European leveraged buyouts.

UBS will provide more financing to European private equity borrowers, to defend its top league-table standing for advisory on European leveraged buyouts. The bank aims to be in the top 10 in LBO financings by year-end, according to Stephen Conway, head of European high yield and loan capital markets in London. UBS didn't rank among the 15 providers of financing to private equity firms last year, by Conway's count.

The new strategy comes as financial sponsors are increasingly awarding underwriting mandates to banks from whom they borrow. UBS competitors such as Goldman Sachs and Morgan Stanley have been committing capital to LBOs more aggressively over the past year to help secure a position on the exit, Conway said. "To be there at the end, you have to be there at the beginning," he noted. Leveraged finance officials at Goldman and Morgan Stanley confirm they are aggressive lenders to private equity concerns.

To build its profile as a finance provider in Europe, UBS intends to focus initially on funding LBOs of smaller companies, rather than setting its sights on industry giants. This mirrors its approach in the U.S., where targeting deals under $700 million and providing funding as well as advisory services has proven so successful that the U.S. advisory business surpassed that in Europe for the first time in 2004. In Europe, meanwhile, UBS's advisory business had historically targeted deals over €1 billion.

Just how much of its balance sheet UBS is planning to commit could not be determined. "The decision is to be more active on the funding side--it's not that we haven't committed capital before or that we're about to become cowboys now," noted Conway.

UBS perceives the greatest threat to its advisory position coming from other banks with strong advisory businesses, rather than banks like Barclays Capital or Royal Bank of Scotland which have historically committed a lot of capital but whose advisory businesses are less well-developed.

UBS was the top European buy-out financial advisor in 2004, according to data from Thomson Financial, having advised on 12 deals in the amount of about $13 billion for a 24.4% market share. Citigroup was in the number two spot, followed by Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, J.P. Morgan and ABN AMRO, in that order.

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