Cinven and Advent seek to offload risk in a € 17 billion Thyssenkrupp deal

Cinven and Advent, the private equity firms behind the planned € 17.2bn acquisition of Thyssenkrupp’s elevator business, are looking for other investors to help them pay for Europe’s biggest buyout deal in a decade, according to people with direct knowledge. of the situation.

The two groups seek to attract additional capital to reduce their own exposure to the deal. They have spoken to investors, including Canadian rival Brookfield, which was previously defeated in the multi-month auction for the elevator division, and the Canada Pension Plan Investment Board, people with direct knowledge said.

The elevator deal closed in February, just as the crisis caused by the coronavirus pandemic began to shake markets. Its high price of € 17.2 billion was emblematic of a multi-year boom in private equity-backed transactions that had raised asset prices.

While buying companies often sell in chunks of capital after accepting big deals, the crisis has left Cinven and Advent trying to sell at a high price when some investors have fewer funds to allocate to private equity. This has caused the process to take longer than usual.

“People will remember Thyssenkrupp in association with Covid, as a historic deal before the market fell,” said one investor who was not involved in the deal.

Cinven and Advent plan to finance the acquisition with approximately € 7 billion in equity and the remainder in debt.

So far, the buying firms have raised more than € 2 billion in capital from investors, including the Abu Dhabi Investment Authority, the Singapore sovereign wealth fund GIC and a group from the Ruhr Valley, the RAG Foundation, people familiar with said The issue. Thyssenkrupp has previously said it will invest € 1.25 billion to maintain a minority stake in the elevator business once it is sold.

People close to Cinven and Advent said most of the stock syndication was accounted for and only a small part remained. Even if no more investors came in, the groups could still complete the acquisition, the people said; the risk is just that they would end up having more of the business than planned.

Buying groups generally try to avoid having too much of a focus on a deal, as it can affect overall performance if it goes wrong. Advent’s latest fund is worth $ 17.5 billion and Cinven’s is € 10 billion.

Some investors refused to buy due to limits on the maximum percentage of their fund that they can allocate to private equity. A drop in the value of their equity portfolios has brought existing private capital commitments closer to that threshold.

“The deal was signed when it was signed and the world changed,” said one potential investor. “There are many more investment opportunities available now than in February.” The buying firms declined to comment.

There has also been speculation about whether Advent and Cinven will seek to sell parts of Thyssenkrupp’s elevator business, such as the North American unit, once the deal is completed.

The battle for Thyssenkrupp’s elevator business was fiercely fought for months, before Advent and Cinven finally stopped competition from Brookfield, Finland Kone, and a group of investors led by Blackstone and Carlyle.

Meanwhile, some of the largest investment banks have been forced to take significant loan cuts in their latest results due to financing commitments made to pay for the deal. Part of the loan exposure was hedged, and some losses may have been partially offset by a subsequent recovery in the market.

Goldman Sachs has the largest stake, with more than € 1.5 billion of debt exposure of € 8 billion for the deal, three people familiar with the matter said in March. Barclays and Credit Suisse are also among the banks with high exposure, FT previously reported. On top of that, there is € 2 billion in so-called “pay-in-kind” (PIK) debt, which is a higher risk because the borrower can pay interest with more debt.

The Thyssenkrupp elevator unit, which employs more than 50,000 people and generated € 8 billion in sales last year, is widely viewed as relatively recession-proof because the majority of its revenue comes from contracts for elevator services. The share prices of rivals Kone, Schindler and Otis have not been hard hit by the crisis. But the sheer size of the deal has complicated matters.

Advent and Cinven’s offer values ​​the company, whose elevators are installed in skyscrapers like One World Trade Center in New York, at approximately 14 times its adjusted earnings of just under 1.2 billion euros, two people familiar with the matter said in the moment of the agreement. Its total leverage, the ratio of its debt to earnings, will be approximately eight times, one of the highest levels recorded in a large European private equity purchase in recent years.

The deal is slated to close in July, people familiar with the process said. None of those contacted said they expected it to fail, a prospect that would be disastrous for Thyssenkrupp. The German industrial conglomerate depends on the money from the sale to finance billions of euros in pension obligations and to shore up its remaining steel, automotive and materials businesses.

Additional report by Robert Smith in London