ICG closes in on £440m CPA buyout

Days after selling its mezzanine position in private equity-backed gaming giant Gala Coral, ICG's minority buyout team is preparing to take a 47% stake in patent licensing business CPA.

Intermediate Capital Group, Europe's largest provider of mezzanine finance to leveraged buyout deals, is supporting the £440 million (€500 million; $708 million) management buyout of Jersey-based CPA Global.

A source close to the process said the transaction was structured as a scheme of arrangement  in part because of CPA's large shareholder base, which must give majority approval to the buyout. CPA has 300-plus shareholders, some of whom were among the UK patent attorneys that founded the company in 1969. Last week, roughly 90 percent of shareholders approved the sale, according to a report in the Financial Times.

Should the deal be approved in Jersey court on Thursday, ICG would take a stake of about 47 percent, while management would own 22 percent and existing shareholders would retain 31 percent. There is also reportedly an option for a co-investor to purchase a 9 percent stake from shareholders.

We come from the culture of investing in situations where you don’t have control and you look for ways to have negative control … so it’s natural for us to move into that territory.

Christophe Evain

The deal is being financed with a £50 million revolving credit facility and £175 million of junior and senior debt from lenders including Lloyds, HSBC, Bank of Ireland, Bank of Scotland, Calyon, Ares Capital Europe and ICG.

Though best known for its mezzanine activities, ICG has been diversifying its portfolio with the purchase of minority equity stakes in recent years.

“We come from the culture of investing in situations where you don’t have control and you look for ways to have negative control … so it’s natural for us to move into that territory,” ICG managing director Christophe Evain recently told sister magazine Private Equity International.

Such moves already seem to be paying off handsomely. The firm’s minority interest in pharmaceutical logistics company Marken, acquired when management purchased control of the business from 3i in 2007, resulted in ICG’s largest-ever balance sheet gain – a profit of £68 million – when the business was sold to Apax Partners in December 2009. ICG did not disclose the returns the deal produced for any of its third-party funds.

Meanwhile, ICG and its mezzanine holdings remain central to many high-profile restructurings of private equity portfolio companies like Gala Coral, the beleaguered British gaming giant owned by Permira, Cinven and Candover. Struggling under a £2.5 billion debt load (and one equity cure down already), Gala's junior and senior lenders have been embroiled in negotiation for months while debt-for-equity swaps were reportedly tabled late last year by existing debt holders Apollo Global Management and the Blackstone Group.

Last week, ICG provided the latest twist in the saga, selling on its mezzanine position in Gala to Apollo, Cerberus Capital Management and Goldman Sachs. ICG and Park Square held about 45 percent of Gala's £540 million of mezzanine debts; about 25 percent of that was sold last week at around a 30 percent discount, according to the Financial Times.

The buying consortium is expected to strengthen its debt position in Gala, inject £150 million in equity and take control with consent from Gala's board and other lenders, according to UK newspaper The Times. Should this scenario play out, the company's existing shareholders would retain a 5 percent stake, the paper said, noting Permira stood to lose the most as it is thought to have invested around £450 million in the gaming company.

In the next issue of
Private Equity International, ICG's leaders sit down with PEI to talk about issues including how it has put a special team in place to work on Gala-style restructuring situations.