Cinven, Goldman confound doubters with IPC financing

Cinven's £860m acquisition of IPC Magazines from Reed Elsevier at the end of last year provided a real test for the European leveraged finance market -- big, highly geared and in a cyclical sector. How did the UK venture capitalist and its arranger Goldman Sachs manage to raise the money?

  • 22 May 1998
Email a colleague
Request a PDF
IF, AT THE end of last year, you had asked three investment bankers which deal they would least like to be arranging, they would probably have all come up with the same answer -- IPC Magazines.

The deal involved a UK consumer magazine publishing company bought at the top of the economic cycle for 13.6 times 1996 pre-tax earnings.

At the same time there were five other deals in the market all looking for $250m plus of senior debt.

It was going to be a real test of character to get the deal done, and there were many who believed Goldman Sachs -- which had agreed to underwrite the entire financing package -- would be forced to take the bulk of the debt on to its books.

Four months later, in April, Goldman Sachs closed the £400m ($655m) debt facility.

Divided into four tranches (a £250m seven year term loan paying 175bp over Libor, a £75m eight year 'B' note at 200bp over, a £75m nine year 'C' note at 225bp over and a £25m seven year revolver), the deal was not the smoothest ever.

Only 21 banks participated in the syndicate -- four less than Goldman Sachs had hoped for. But against all predictions and giving nothing away on pricing, the deal had been done.

The success or failure of the acquisition will not be known for some time. The consolidation of the European publishing sector has some way to run, and Cinven may be able to sell the company off at a profit or use it as a base for future acquisitions.

But regardless of the final outcome, the fact that Cinven managed to raise the money at all speaks volumes for the confidence of the European loan and bond markets and their ability to finance even the most leveraged of transactions.

The initial financing was relatively simple -- a large chunk of equity (£315m), £180m of mezzanine and £400m of senior debt. The genius was in structuring each of the different parts of the deal so that the company could repay its debt and expand at the same time.

The first problem was the equity. With the future direction of the UK economy uncertain, lenders were unlikely to want to lend very large amounts of debt to a cyclical company such as IPC which relied on advertising revenues.

It was essential that at least 30% of the £860m should come from equity providers. But Cinven (having already made a stream of acquisitions during the second half of 1997) could not afford to put up much more than £185m.

A number of banks (including ABN Amro, Greenwich NatWest and Paribas) were willing to put up some equity, but balked at putting in £100m or more. Fortunately, a solution appeared in the form of Intermediate Capital Group (ICG), the UK mezzanine provider, which agreed to take a sizeable amount on to its own balance sheet.

Then there was the debt.

The cheapest option was to finance the deal entirely with senior debt. But Cinven, which was planning to embark on a radical expansion programme in the early years after the LBO, knew that IPC would not have enough free cashflow to repay a large seven year amortising loan.

The company could handle the longer 'B' and 'C' note, but Goldman Sachs believed that banks were unlikely to lend such a large amount without some form of amortisation. They would therefore have to raise some of the money in the bond markets.

This raised its own problems. High yield bond issues take time, and Reed Elsevier -- which had sold IPC -- was asking for the money now. Mezzanine finance was a possibility. But Cinven, having already given away a large bite of the equity to ICG, was not happy about the equity warrants that a normal mezzanine loan would require.

Once again, ICG stepped into the breach, agreeing to waive the need for an equity kicker on the condition that the loan would be refinanced (and quickly) in the bond markets.

For Goldman Sachs, the bond financing presented no particular difficulties.

It had already raised large amounts for buy-out like Geberit and Impress Metal. But would it be able to raise the cash at the pricing Cinven wanted?

At the end of February, the strategy was set. The firm would launch two bond issues -- a £120m 10 year fixed rate bond offering 9.625% and a £102m 10 year zero coupon bond. Both would contain provisions allowing Cinven to call the bonds at any time.

Despite the relatively aggressive pricing (and the call options), investors flocked in. The bonds were three times oversubscribed and both tranches tightened in the aftermarket. EW

  • 22 May 1998

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 242,241.25 929 8.19%
2 JPMorgan 223,842.40 997 7.57%
3 Bank of America Merrill Lynch 216,424.41 725 7.32%
4 Barclays 185,098.93 672 6.26%
5 Goldman Sachs 159,205.64 520 5.38%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 32,522.19 61 6.53%
2 BNP Paribas 32,284.10 130 6.48%
3 UniCredit 26,992.47 123 5.42%
4 SG Corporate & Investment Banking 26,569.73 97 5.33%
5 Credit Agricole CIB 23,807.36 111 4.78%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 10,167.68 46 8.81%
2 JPMorgan 9,894.90 42 8.58%
3 Citi 8,202.25 45 7.11%
4 UBS 6,098.17 23 5.29%
5 Credit Suisse 5,236.02 28 4.54%