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Buyouts are back, baby!

A private equity (PE) industry hungry for deals is expected to stir Europe’s leveraged loan markets from their slumber. Uncertainty over the crisis in Ukraine froze issuance in the first half of March, with some tentative add-ons valued at under €200 million apiece coming in the latter half of the month.

What does this activity mean for the PE sector in the months ahead?

1/ Play may have paused, but now it seems to be pressing ahead

The first half of April saw some momentum build before the Easter break, with more than €2 billion raised since the February/March pause. Since then, play has resumed—and, according to ION Analytics, there is potentially €100.5 billion worth of upcoming large-cap M&A financing to hit the leveraged finance markets.

Cancer drug specialist Clinigen saw a €730 million term loan B priced last week to fund its £1.2 billion take-private by Triton Investment Management, while a €480 million loan from Cupa Group was issued to back its US$1 billion buyout by Brookfield, as Carlyle exits from the Spanish slate miner.

2/ PE pipelines look promising

Investors have their gaze fixed on a pipeline full of potential LBOs. In the UK, CD&R is looking for €6.6 billion in financing for its WM Morrison deal, the US PE shop having acquired Britain’s fourth-largest supermarket late last year with a winning bid of £10 billion.

Other notable deals in the making include CVC’s acquisition of Unilever’s tea business, Ekaterra, which was valued at €4.5 billion and so represents another sizeable loan for the market to chew on, and ADIA’s takeover of Ardonagh, which valued the insurance broker at US$7.5 billion but was only a minority deal.

Recent loans have also so far priced within guidance, which is more than welcome news for issuers looking to raise cash.

3/ Some are still testing the waters 

While loans are moving along, bond markets are not playing as nicely. Last month, IGD was forced to cancel its €350 million unsecured note despite the bond’s final terms falling within guidance. Appetite will soon be tested as Irca, an Italian ingredients manufacturer, looks to tap investors for €430 million to back its €1 billion LBO by financial sponsor Advent International. Notably, given concerns over interest rate tightening, the bond is expected to be a floating rate note.

The biggest test yet for the recovery of the market will be a potential package to finance Apollo Global Management’s £6 billion takeover of UK high street pharmacist Boots, a PE darling of many years. However, this is unlikely to feature before a significant amount of paper has first made its way through syndication. And with Boots’ owner Walgreens Boots Alliance recently acknowledging that an IPO is not off the table should the sale process fall through, it’s a deal that may never see the light of day.

Still, corporates in conversation with PE suitors about potential deals can take comfort from the fact that financing is now back on the table.