UK buyout firm Cinven has decided against using borrowed money to purchase a building-materials business, according to people familiar with the matter. It’s an unusual move in the private equity world that in part reflects the turmoil in the banking industry and leveraged-finance markets.
(Bloomberg) — UK buyout firm Cinven has decided against using borrowed money to purchase a building-materials business, according to people familiar with the matter. It’s an unusual move in the private equity world that in part reflects the turmoil in the banking industry and leveraged-finance markets.
Cinven will use its own money to buy the chemical admixtures operations from Germany’s MBCC Group, said the people, who asked not to be identified because the talks are private. Buyout firms typically use high-yield financing for a significant portion of the purchase price when doing deals, saddling the target with debt but also providing much bigger returns than acquisitions that are financed with equity.
But given the turmoil in the banking industry, acquirers are getting creative when purchasing assets. Leveraged loan terms in Europe are more expensive now than in early March, even though spreads have tightened in recent days. Pricing is significantly higher than before Russia’s invasion of Ukraine last year disrupted debt markets and the flow of cheap and plentiful cash.
Cinven is buying MBCC’s admixtures assets in England, the US, Canada, Europe, Australia, and New Zealand. The operations generated net sales of about 920 million Swiss francs last year and include production sites and sales offices in 36 countries. Admixtures are used in concrete to control setting and early hardening or provide additional properties.
Because it’s not saddling the business with debt, the deal has another uncommon feature: Cinven was able to obtain a credit line for the business that doesn’t require it to periodically meet financial tests known as covenants, one of the people said. That means management will have more flexibility in running the business without having to worry about bumping up against limits on, say, how much debt it’s carrying relative to earnings.
The UK private equity firm had financing offers from direct lenders but opted against them, said one of the people. It plans to refinance with debt in the future when the MBCC unit needs funding and markets are more stable, they said.
Cinven declined to comment.
The MBCC division was originally going to be sold to Ineos, but the deal faced antitrust concerns from UK regulators. Instead, Swiss building-materials maker Sika AG, which is selling the assets to win regulatory approval for its takeover of MBCC, said it would switch to Cinven as the buyer.
Under the previous Ineos terms, the admixtures business would have been burdened with €720 million of leveraged loans.
Sika Drops Ratcliffe’s Ineos for Cinven on UK Antitrust Pushback
Banks were willing to grant loose terms on the €125 million revolving credit facility because of the lack of debt in the acquisition, one of the people said. The money, which equates to around 1.5 times leverage based on the unit’s earnings of about €75 million, will be used for general corporate purposes.
The flexible financing is expected to help Cinven maneuver the complex carveout of the MBCC unit into a standalone business. Banks providing the credit line may be involved in the process if Cinven chooses to tap the debt market later on, the people said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.