UBS Warburg has set a bank meeting tentatively for Nov. 8, backing Investcorp's buyout of Schlumberger's water-meter business, and will be bringing $190 million of loans to the market, comprising a $30 million revolver and $160 million in term loans. A banker familiar with the situation said J.P. Morgan was also considered by Investcorp to lead the financing, but would not provide the loan on such favorable terms in the current tough market. UBS bankers declined to comment. Calls to a J.P. Morgan spokesman were not returned. Investcorp officials in New York referred questions to officials in the London office, who could not be reached.
At $300 million, the buyout price is slightly over a seven times multiple and Investcorp is said to have fought off five to seven suitors from the sponsor universe to win the auction by "over equitizing" the deal. The sizeable equity piece in the transaction of 45% will cut into overall returns, but should ensure the deal is completed, said the banker. Despite the difficulty of the market, which has seen investors sit on the sidelines until secondary prices rise, the deal is still expected to fare well. Deals for CommScope and Appleton Papers had to have extensive price flexing and were offered at discounts, while J.P. Morgan's deal for Collins & Aikman's buyout of Textron's auto-trim business for $1.3 billion is on hold until conditions improve.
"It [the water-meter business] is a pretty defensive business with the end buyers the water utility companies. Looking through the financial history of the company, during the past thirty years the company has performed well in downturns," the banker noted. The leverage multiple is 3.8 times debt to EBITDA, which is slightly higher than comparable industrials, but the firm has extremely low capex ratios of 3%, compared to 10% industry averages, gross margins are high and cash flow is good, so the firm can delever quickly, the banker explained. Christian Lange, director of investor relations at Schlumberger did not return calls.