European mid-market auction watchlist: Roadmap and vaccines boost optimism

Details of the planned roadmap out of lockdown in the U.K., with many other countries making similar plans — as well as an ongoing rollout of vaccines for COVID-19 — is helping to boost optimism across the entire European market. This confidence has yet to spread to all sectors though, as bankers and lenders search out deals in the industrial, chemicals, pharma, medical, biotech and TMT segments, while leaving others to struggle.

The improved sentiment is leading some auction processes to be accelerated, while the practice of pre-empting deals (whereby bidders have an offer accepted before the usual rounds have completed) is becoming increasingly common — as was seen with IMV Technologies SA, which was bought by Montagu PE, and Alliance Etiquettes, which was sold to Chequers. Elevated enterprise-value, or EV, and leverage multiples are also being seen, which adds to the heat in the market. "We are living amidst an unprecedented frenzy. I predict it’s going to burst because there are no limits currently," a banker said.

Big tickets

Such optimism has led to a rush of big-ticket situations, with similarly large valuations. Meanwhile, the standout deals are largely from the European Continent rather than the U.K.

For example, Charterhouse's sale of French drug manufacturer and distributor Cooper is approaching its final phase, with talk of an EV reaching more than 13x the marketed EBITDA of €150 million, at €2 billion. OTTP and PAI have joined up to bid for the group, while CVC is bidding alone, sources say. HSBC has offered a staple financing of 7.25x EBITDA, for a first-lien term loan B and a second lien facility.

The sale of Franco-American software specialist Calypso Technology has kicked off with early EV talk of $2 billion, suggesting a multiple of 16x EBITDA of $125 million. Bridgepoint and Summit Partners are selling the company, and sellside advisers Evercore and Jefferies have sent out information memoranda widely. First-round bids are expected on March 12, and the deal will be marketed on both sides of the Atlantic with interest likely to come from sponsors such as EQT, KKR, Thoma Bravo, Warburg Pincus and CVC.

Looking further ahead, Groupe ECT is expected to join the deal pipeline a little later in the year, with Rothschild advising. The Chequers Capital Partners-backed company will be marketed at annual EBITDA of roughly €80 million. ECT's business involves upcycling excavated soil from construction sites and public works and land development.

A sale process for Carlyle-owned glass-bottle maker Saverglass sas is also about to kick off, with Rothschild advising. The company will be marketed off EBITDA of €130 million, and the sale is likely to bring topical ESG issues to the fore, given the firm's focus on recyclable glass. A sale would exit Carlyle from an investment dating from 2016, when it bought the group from Astorg in a deal backed by a €295 million TLB.

All these companies come from extremely attractive sectors, and so will bring highly competitive auction processes. However, given their size it is most likely these deals will end up going down the syndication route for financing — which means the role for a direct lender would be at best confined to a second lien tranche. "There is definitely an increasing trend for more junior pieces," a direct lender said. "There is so much that needs to be deployed, and it is yet another way find an outlet for dry-powder."

This move toward focusing on the junior part of the capital makes sense for funds, too. "When you think about a unitranche, it's just a senior tranche plus a junior tranche blended, and lenders have the possibility to give second lien from their funds up to a certain percentage," the same lender added, noting also that second lien is one of the few routes open for sponsors to maximize leverage in the context of rising valuation multiples.

Middle earth

Meanwhile, in the more typical upper-mid-market space are situations such as Belgian firm Desotec, which is generating much interest, with the EV and leverage pitches expected to be high in this case. EQT-owned Desotec is a provider of mobile industrial filtration services.

Oikos, a German manufacturer of prefabricated houses, is up for sale in a process led by Alantra, with only banks pitching for debt. The company is being marketed off EBITDA of roughly €47 million, sources said. Given the cyclical nature of the construction sector, direct lenders are said to be wary of the risks involved in this case as they usually offer higher leverage than banks, and direct lenders are therefore not in the race for this asset. The company is attracting bank pitches for club deals at around 4x-4.5x EBITDA.

The sale of Aroma Zone, the French essential oils company, is now in the second round, with bidders Ardian (via portfolio company Inula), Eurazeo and Bain. However, the auction is dragging a little, sources comment. The company, which is marketed at roughly €35 million EBITDA, is attracting high pitches, although the direct lending route seems to be the most likely as very high valuations are expected, sources add. The EV is expected to go as high as 12x-15x. Pitches are at roughly 5.5x EBITDA for banks, while for debt funds they are around 6.5x-7.5x, sources said.

Another auction that is not going very swiftly — and which may be even stalled, according to sources — is Cemoi Chocolatier, a French firm which is marketed off EBITDA in a range of €40 million to €50 million, with BNP Paribas is conducting the sale. Although the company is an attractive target for trade buyers, PE funds are also showing interest because it is a primary deal (not owned by a sponsor), sources note.

The sale of German diagnostics business Munich Leukemia Laboratory by its private owner is approaching the final phase, with PE funds such as KKR and EQT and a strategic business in play as potential buyers. The company has hired Goldman Sachs to conduct the sale, and is marketed off EBITDA of roughly €41 million. Both banks and debt funds are pitching debt packages to potential bidders, and the EV could go up to 12x EBITDA.

Belgium construction services company Infra Group is being advised on a potential sale by Natixis Partners. The company will be marketed at around €50 million EBITDA. Jean-Baptiste Marchand, the Natixis Partners banker in charge of the sale, has just left the firm to set up his own boutique, Amala Partners — however, sources say that he will manage this sale under the Natixis flag.

Ardian-owned, French orthopaedic-equipment specialist Lagarrigue has been put up for sale by its sponsor, with Edmond de Rothschild advising. The company is also going through some acquisition processes, and therefore the expected EBITDA figure is fluctuating between €20 million and €30 million.

Ireland-based Healthcare 21 is on sale, with William Blair advising. The healthcare distribution company is marketed off EBITDA of €20 million, and an EBITDA margin of approximately 14% is expected here.

Alvinesa Natural Ingredients, the Spanish firm owned by Artá Capital, has been put up for sale with Rothschild advising. The company's EBITDA is marketed at €24 million. Despite sitting in the food sector, the company is expected to attract both direct lenders and banks.

Smaller deals

Another Spanish agricultural business on the block is SAS Agri, with KPMG leading the sale process. The company will be marketed off EBITDA of roughly €12 million to €15 million, and the situation is a primary deal.

Equistone-owned Charles & Alice, a fruit-dessert specialist, is on sale with Natixis Partners. The company is marketed off EBITDA of roughly €15 million to €17 million.

German Bregal-owned Sovendus is also on sale, with lender education meetings having been held in the last week of January. The company is being marketed off EBITDA of €17 million.

Rounding up the smaller deals, La Maison du Whisky has hired Edmond de Rothschild in relation to a refinancing of its existing debt that matures in Q1'21, and a dividend recap. The company is aiming for a €60 million debt package that will cover both the refinancing and the recap. It is being marketed off EBITDA of roughly €10 million, and generates turnover of roughly €100 million.

Shifting sands

In addition to the situations above, some deals have changed direction from what was planned at the outset. At the beginning of 2020, for example, Cyrillus & Vertbaudet — a French apparel company owned by Alpha Private Equity — hired Canaccord to conduct a sale, but a year later the same bank has been mandated to sell the asset piecemeal. Cyrillus operates in the high-end classic apparel segment, while Vertbaudet targets the midrange price segment.

Both Cyrillus and Vertbaudet specialize in children's apparel, and while Vertbaudet has performed well during the COVID-19 crisis, Cyrillus has not. Vertbaudet has taken advantage of online sales and now has its EBITDA of about €25 million, though Cyrillus' EBITDA has shrunk, and its high-end position has not seemed as relevant during the pandemic.

Elsewhere, G Square-owned Keys Group, a U.K.-based residential childcare and education business, was up for sale with Rothschild advising, but the situation is now likely to change to a refinancing transaction.

And finally, the sale of Equistone-owned Compin Fainsa has been reignited after a pandemic-induced hiatus, with DC Advisory advising. The company's EBITDA will be marketed at roughly €11 million, and the process should start in March.