With $80 billion (€80.1 billion) of unattractive M&A financing debt, global banks are trying new tactics to find buyers.
In the case of the private equity acquisition of Citrix Systems, they are splitting the debt into smaller pieces to attract more investors.
Some financing packages have added euro debt, as in the case of the ETC Group acquisition.
Fine-tuning deals up and down the industry are being considered, including CVC’s acquisition of Unilever’s tea business and Bain Capital’s acquisition of French computer services company Inetum SA.
Nicholas Clarke, partner at law firm Allen & Overy and co-head of the Global Leveraged Finance Group, said: has seen many transactions that have changed the capital structure or terms.
“Underwriters have tried to tighten terms upfront to address areas that may have attracted investor attention in the documents.”
This is how the industry is adapting to the current investment climate, where risk appetite is fading away and money managers are hurting from bad bets elsewhere. It was launched a few months ago when it was near an all-time high.
However, there are often limits on how much the bank can change. They are still bound by the underwriting agreement and will have to renegotiate new terms with the private equity firm.
In the case of the Wm Morrison Supermarkets acquisition, the bank sought permission to convert part of the term loan into dollars to attract a wider investor base, but the retail chain’s private equity buyers Clayton, Dubilier & Rice did not allow. The company approves the request, said a person familiar with the matter, who spoke on condition of anonymity.
Some of Morrison’s loans have been sold to investors such as Asian and commercial banks and PIMCO.
Despite these efforts, the banks involved in the deal still have more than £1 billion in funding, indicating that the additional costs of M&A deals risk being pushed away from the market.