CBS Private Equity Newsletter Januar

2022

CBS Private Equity Newsletter

Overview
KKR bids for Telecom Italia
Bid of €0.505 per share gives a compa-
ny equity value of €10.7 bn.

McAfee to be taken private by Advent

The largest public-to-private deal of the
year at over $14bn.

CVC to acquire tea business from Uni-

lever for €4.5bn
Transaction will go ahead as other bid-
ders, Advent and Carlyle, pull out over
ESG concerns.

Healthcare sector still a key target

for
private equity investment
Medline and Athenahealth are acquired
in two of the largest LBOs of the year.

Investors seek returns through lever-

One of Europe’s Largest
age
Cheap debt and dry powder drives com- Leveraged Buyouts?
petition among investors.
The bid by KKR for Telecom Italia at the price of €0.505 per share
gives the company an equity value of €10.7 billion, and with the
company’s €22.5 bn debt, this deal would amount to one of the
largest private equity transactions to occur in Europe with an
enterprise value of €33bn.

The transaction remains subject to approval by the Italian

CVC Acquires Ekaterra
government
The long running sale process ended as
and
key KKR may have to consider a higher bid following the claims of
Advent and Carlyle dropped out of the
bidding. stakeholder, Vivendi, that the bid does not accurately reflect the value

Neither firm was interested in acquiring of

the company. KKR may have to consider raising their offer up to 90
cents
tea plantations in East Africa due to
per share to be successful.
concerns over worker conditions This bid comes as competitors in the European telecommunications
sector have been cautious to engage in transactions with each other as
and human rights and so they did not a
result of competition concerns. This may be seen to advantage
submit bids for the entire unit. This
highlights the increasing sensitivity of private
investors around investing in assets equity firms looking to acquire companies within the sector, but the
that present ESG risks. scrutiny of competition authorities may cause difficulty in finding
willing
Author: Ergi Qosja, Graduate Law Student at The
buyers University
among of Law,
strategic London. Contact:
competitors qosja.er@gmail.com
when looking to exit an
 CBS Private Equity Newsletter CBS Private Equity Newsletter Januar
2022

Consortium Investments
With asset valuations being so high, investing as a
consortium can facilitate transactions that financial
sponsors may not be able to undertake alone.
Furthermore, by acting as a consortium, financial
sponsors are able to mitigate their risk. This is in-
creasingly important with transactions using higher
leverage ratios. Increasing Leverage Ratios
Recent high profile examples of consortium invest-
ments include the £7bn takeover of British super-
With record amounts of dry powder in the industry and
market chain, Morrisons, which is being led by
access to cheap debt, private equity firms have been
CD&R with participation from Ares Management
eager to make deals.
and Goldman Sachs Asset Management; and the
$17bn acquisition of Athenahealth by Hellman & This has led to competition among private equity
Friedman and Bain, which will be financed by $7bn firms for profitable targets, with firms willing to pay a
of equity. premium for valuable assets. The drive to achieve
greater returns has led to an increase in leverage rati-
os when financing acquisitions.
Even institutional investors are increasingly willing to
take on more risk to achieve their desired returns,
such as California’s state pension’s recent decision to
take on roughly $25bn (5% of its fund value) in debt
to invest in financial assets. More than two-thirds of
buyouts in the US last yearwere valued at more than
11 times Ebitda according to Bain & Co.
With such high leverage ratios, there is a much small-
er margin of error. The recent bankruptcy of software
© Pavlo Gonchar/SOPA Images/Sipa via Reuters company Riverbed, which was acquired by Thoma
The bid by KKR for Telecom Italia at the price of €0.505 per share
Bravo in 2014 using $2bn of debt, highlights the risk
gives
Thethebid company
by KKR for an Telecom
equity value
Italia of
at €10.7
the pricebillion, and with
of €0.505 per the
share
Looking Ahead at Carried Interest company’s that comes with using heavy leverage to finance ac-
gives the company an equity value of €10.7 billion, and of
€22.5 bn debt, this deal would amount to one thethe
with
quisitions,
largest private€22.5equity especially into fields wherein rapidly changing
Private equity has been successful comingcompany’s
out of the technology bn transactions
debt, this deal occur
would Europe
amount with ofanthe
to one
enterprise
largest value of €33bn.
private equity can impact
transactions cashto flow. Investors
occur in are
Europe aiming
with an
height of the pandemic, and much of this success can to find targets that will have reliable growth.

enterprise value of €33bn.

be attributed to the fact that firms are able to employ
The transaction Theremains
recentsubject
Medlineto approval by theBlackstone,
deal involving Italian Carlyle and

their proprietary networks and capital to assist a

The transaction remains subject to approval by the Italian
portfolio company in growing its market share or Hellman & Friedman will be at 50% debt to total
government
adapting its business model through and acquiring
KKR mayorhave toInvestors
cost. consider will
a higher bidthe
point to following thein
continuity claims of
Medline’s
keygovernment
selling assets. The success of the sector is
and reflected management anddoes
the constant need reflect
for medical sup-
key KKR may
stakeholder, havethat
Vivendi, to consider
the bid a higher bid following
not accurately thethe
claims
valueof
in the growing executive rewards. plies as indicators of stability. Nevertheless such high
stakeholder, Vivendi, that the bid does not accurately reflect the value
of
This has in turn led to increased criticism surrounding leverage ratios are being increasingly criticised as risky
the company. KKR
of
cents may have to consider raising their offer up to 90
investments.
the classification of carried interest payments as re-
the company. KKR may have to consider raising their offer up to 90
turns on investments, which incurs capitalper share
cents
gains to as
tax, be successful.
opposed to remuneration. Concerns overThis per
tax share
changes
bid comes to as
be competitors
successful. in the European telecommunications
may encourage funds to accelerate the process
sector of
bidsell-
Thishave been cautious
comes to engage
as competitors in transactions
in the with each other as
European telecommunications
ing investments before 2022 in anticipation of changes
a sector have been cautious to engage in transactions with each other as
to tax policies. result
a of competition concerns. This may be seen More in our Podcast
to advantage
result of competition concerns. This may be seen to advantage
private
equity firms looking to acquire companies within the sector, but the
private
scrutiny
equityoffirms
competition authorities
looking to may causewithin
acquire companies difficulty in finding
the sector, but the
scrutiny of competition authorities may cause difficulty in finding
willing
Author: Ergi Qosja, Graduate Law Student
buyersat The University
among
willing of Law,
strategic London. Contact:
competitors qosja.er@gmail.com
when looking to exit an