WHEN THE GOING GETS TOUGH

Participants in the European leveraged finance publicly assert there has been no let up in Europe's leveraged loan market, as lenders are putting out aggressive packages to back buyouts on record multiples of earnings before interest, tax, depreciation and amortisation.

But there are signs that on all sides of the deal the ardour to invest is abating. Privately bankers are saying they expect the crunch to come sooner rather than later.

Telling was the flexibility JPMorgan, Deutsche Bank and Lehman Brothers demonstrated in June on the pricing of the €1.25 billion financing for German Media Partners, the consortium owner of 50.5 percent of German broadcaster ProSiebenSat.1 – clearly a concession to investors who were no longer prepared to take any paper at any price.

One banker on the deal described it as highly structured in terms of its compromising on the pricing of the €1.2 billion term loan and a €50 million revolver.

At launch, the loan was priced at 300 basis points above Euribor, the European interbank lending rate. The new offer was 400 basis points above Euribor. In addition the banks proposed 50 basis points up front, thus pricing the loan at a discount, and cut the maturity of the term loan, according to a report from Standard & Poor's, a rating agency.

Another banker said: “From an investor point of view it is a margin loan product and should be priced as such. We are of the view it has more backing than a margin loan. The improved yield is our compromise on this view.”

The increased margin offered to investors is unusual for the European market, which bankers say is more used to price cuts, driven by high demand for paper from institutional investors. The German Media loan will remain the same size and be used to pay a dividend to the consortium members including Haim Saban, Alpine Equity Partners, Bain, Hellman & Friedman, Providence, Putnam, Quadrangle and Thomas H. Lee.

Axel Springer was lined up to buy ProSiebenSat.1 from the consortium earlier this year, but the sale was blocked by the competition authorities.

MACQUARIE BUYS IN EUROPE
Bermuda-based Macquarie Global Property Advisors (MGPA), the private equity real estate arm of the Australian bank, has teamed up with Parisian developer Concerto Développement to build a €250 million ($315 million) portfolio of logistics parks throughout France. The project will initially develop two predetermined sites, near Lille and Valence. Further East, Macquarie acquired a Warsaw office block in a joint venture with London property company London & Regional Properties. The building, known as Rondo 1, is a 40-story office tower with 60,000 square metres of available space and 492 parking spots. Terms of the transaction were not disclosed.

APAX TOPS $5.5BN BANK REVENUES
Global investment banking revenues from buyout firms in the first six months of 2006 totalled $5.5 billion (€4.29 billion), compared to $6.029 billion for the same period of 2005 according to Dealogic. In the first half of 2006, financial buyers accounted for 16 percent of the $33.96 billion of revenues generated globally by investment banks. Apax Partners generated the most revenues in the period – $291 million in total, of which Deutsche Bank was the chief benefactor with a 12 percent share, or $34 million. Goldman Sachs Capital Partners and Kohlberg Kravis Roberts took second and third places with $243 million and $213 million of revenues respectively, with Goldman Sachs taking the largest share of both.

UK HIGH STREET UNDER RENEWED ASSAULT
A consortium of Texas Pacific, CVC and Permira, three buyout groups, is eager to engage with the board of Morrisons, a UK supermarket chain, about a £6 billion bid to take the company private while the founder of Matalan, a discount retailer, is also preparing a bid to buy back his firm. Newspaper reports say a bid for Morrisons would come as it continues to try to turnaround its fortunes after a difficult few years, since acquiring rival Safeway for £3 billion in 2004. Meanwhile, shares in Matalan have climbed as the market digested news that the discount fashion store's founder John Hargreaves, current chairman and 53 percent shareholder, is considering a buyout bid.

BRIDGEPOINT DRIVES OFF WITH 7X RETURN
Bridgepoint, a European midmarket private equity firm, has sold Swedish parking business Carpark to Q-Park, a Dutch owner and operator of multi-storey car parks. No price was disclosed, but the enterprise value for the deal is understood to have been approximately Skr3 billion (€325 million), returning more than seven times the original investment for Bridgepoint. UBS advised Bridgepoint on the sale, which included interest from both trade and financial buyers. Linklaters provided legal advice, while Ernst & Young provided accounting due diligence. London-based Bridgepoint acquired Carpark, known as Nordisk Parkering, in July 2001 in a secondary buyout from UBS Capital.

BUYOUT M&A IN EUROPE TOTALS $135BN
Private equity accounted for 17.2 percent of all European M&A activity in the first half of 2006, slightly down on 23.9 percent for the same period of 2005. However, more cash was invested in a smaller number of deals in the first half of this year. Sponsor-backed M&A in Europe in the first six months of 2006 totalled $134.8 billion (€106 billion) from 657 deals, compared to $108.45 billion from 797 transactions, according to figures from Dealogic. The overall announced M&A figures for Europe, which jumped from $453.2 billion in the first half of 2005 to $787.04 billion so far this year, underlined the reemergence of corporate buyers.

MECOM BUYS NORWEGIAN MEDIA GROUP
Mecom, headed by David Montgomery, the former Mirror Group chief executive, has continued its pursuit of European media assets with the purchase of the media arm of Orkla, a Norwegian conglomerate. Orkla said in a regulatory statement that its board of directors had authorised the sale of Orkla Media Group for an undisclosed sum. As part of the transaction, Orkla also “intends to become a significant shareholder” in Mecom, but said that the size of the stake is yet to be determined. According to a report in The Daily Telegraph, a UK broadsheet, the sale was worth $1.1 billion, Mecom's largest acquisition to date.

ABN AMRO BUYS PIPELINES FROM TERRA FIRMA
ABN AMRO Infrastructure Capital Equity Fund, part of the Dutch banking group, has bought ESP Pipelines Group for £225 million ($409.5 million; €325.9 million) from Terra Firma, the private equity group headed by Guy Hands. A source close to the deal said Hands's group had now cashed out its original equity investment in East Surrey Holdings, ESP's parent, while retaining Phoenix Natural Gas, a gas supplier in Northern Ireland. Barclays Capital is underwiriting the debt for ABN's acquisition. Gleacher Shacklock provided financial advice. ESP is the third largest licensed independent gas transporter in the UK.

EXPONENT GOES ONLINE FOR RAIL TICKET DEAL
Exponent Private Equity, a UK midmarket firm, has bought Trainline, a UK rail ticket retailer and information provider, for £163 million (€238 million; $300 million) – from a consortium of shareholders that includes Virgin, Stagecoach and National Express transport groups. It is Exponent's fifth deal after a slow start since raising its £400 million fund two years ago. Trainline was launched in 1999 to sell rail tickets through the internet and call-centres. The business has expanded in the last seven years, acquiring its rival QJump from National Express Group in 2004.

BOS BACKS £350M UK CINEMA MBO
Bank of Scotland Corporate's integrated finance team has backed the management of Vue Entertainment, a UK developer and operator of cinemas, in a buyout worth about £350 million (€510 million; $645 million) its biggest deal to date. The bank has taken a minority stake, providing an exit for the chain's previous investors Boston Ventures, Clarity Partners, two US private equity firms, and Legal & General Ventures, the buyout arm of the UK insurer. An adviser close to the deal said the buyout firms made an IRR of about 20% and a money multiple of close to two times the original investment.

ARCAPITA SEALS INSULATION DEAL
Arcapita, a Bahrain-based investment firm, is buying Paroc Group, an insulation manufacturer, from Banc of America Equity Partners Europe for €620m ($779m). It is the first deal since Arcapita said last month it planned to double its issued equity capital to $800m to enable it to extend its investment activity. A source close to the deal said Arcapita saw off competition from more than 60 rival firms in the first round of a highly competitive auction, which included interest from Texas Pacific Group, Carlyle, Warburg Pincus, BC Partners and Investcorp.

MID EUROPA MAKES FIRST PLAY IN CROATIA
Central and Eastern Europefocused buyout firm Mid Europa Partners has agreed to buy the Croatia-based calcium aluminate cement business division of Germany's HeidelbergCement Group. Mid Europa paid an undisclosed sum to acquire Heidelberger Calcium Aluminates. Thierry Baudon, managing partner of Mid Europa, said that the transaction includes HeidelbergCement Group's 92.4 percent stake in Istra Cement, a production facility in Croatia, as well as two trading entities in Germany and the US.

GI PARTNERS BUYS SPIRIT GROUP PORTFOLIO
GI Partners has acquired 290 managed pubs from Punch Taverns through wholly-owned subsidiary Orchid Pubs. GI Partners paid £571 million (€831 million; $1.05 billion) for the Spirit Group pubs portfolio, its largest deal in Europe to date. Punch Taverns sold a portfolio including 136 pubs in the south of England and Wales, 133 in the north of England and 21 in Scotland. Punch Taverns reportedly beat off competition from Clearbrook Capital Partners, the Barclay brothers, Macquarie bank, Robert Tchenguiz and Mitchells & Butlers to acquire pub operator Spirit Group in a £2.7 billion transaction in December 2005.

PPM CAPITAL PAYS £182.5M FOR AZZURRI
UK mid-market private equity firm PPM Capital has acquired voice and data services company Azzurri Communications from 3i for £182.5 million (€266 million; $343 million). The Azzurri management team has reinvested alongside PPM Capital in the transaction. Debt facilities for the transaction were provided by Bank of Scotland and Barclays. PPM Capital was advised by Catalyst, 3i and Azzurri by Citigroup. 3i said that it received £115 million of proceeds from the sale, generating an IRR of 38 percent and a money multiple of 4.9x its initial investment.

PERMIRA ABANDONS DE VERE DEAL
Permira gave up its pursuit of De Vere Group after Richard Balfour-Lynn's Alternative Hotel Group (AHG) had a third offer accepted by the UK hotel and leisure chain's board. Permira had called for shareholders in De Vere Group to “take no action” following an earlier 850 pence per share offer from AHG. Despite no counterbid from Permira, AHG then raised its offer to 875 pence per share, valuing the business at approximately €767 million ($968 million). However, a statement from Permira said that it “reserves the right to announce an offer or a possible offer for De Vere” if the AHG bid is withdrawn or lapses.