Tale of three buyouts

Alliance Boots, the drug store chain and pharmaceutical group bought in Europe’s largest leveraged buyout in 2007, continues to give owners Kohlberg Kravis Roberts cause to smile. The company, which was taken private by KKR and executive chairman Stefano Pessina for £11.1 billion (€12.6 billion; $17 billion) in May 2007, has once again posted a strong set of figures. In its preliminary results for the year ending 31 March, the group grew revenue by 9.6 percent to £22.5 billion and EBITDA by 9.2 percent to £1.36 billion, doubling its underlying after tax profit to £602 million.

“Since taking the company private, this is our third consecutive year of double digit trading profit growth,” said Pessina in the results statement. “Our strong financial position will enable us to continue to grow both organically and through acquisitions.”

Importantly the group has been able to chip away at its debt, which has been reduced by £645 million to £8.4 billion. It has been buying back its debt for as little as 60 pence in the pound.

Meanwhile, Terra Firma’s EMI Group, a buyout struck months after the Alliance Boots deal right on the cusp of the sub-prime mortgage crash in August 2007, continues to survive under the ownership of the Guy Hands-led firm. Terra Firma has been at loggerheads with EMI’s lender Citigroup, which provided most of the financing for the £2.4 billion in 2007 take-private, with the sour relationship between financial sponsor and bank leading to a law suit earlier this year.

In May, however, the music group revealed that Terra Firma would be in a position to inject “additional sums” to let it comply with banking covenants.  A source close to the situation confirmed the injection comprised £105 million from existing investors.

While the show goes on for EMI, the game is over, however, for the private equity sponsors of Gala Coral. After protracted negotiations to restructure its £2.6 billion debt load, the three firms walked away from the investment with just £10 million each, sources close to the process confirmed. The three groups had in total staked £1.2 billion in equity on the deal. Mezzanine lenders to the group, including Apollo Management, Cerberus Capital Management and Park Square Capital emerged from the restructuring process as the new owners.

While these three closely watched deals show contrasting fortunes, prospects for the performance of leveraged buyouts more generally in Europe are looking less dire than they have, according to Fitch Ratings.

The ratings agency in May reported that “signs of stabilisation” were emerging in its shadow ratings of European leveraged buyouts, although the looming refinancing of what it pegs to be €200 billion of principal payments falling due between 2013 and 2016 still give cause for concern.