London-based private equity group Apax Partners has entered exclusive talks to buy ISS, the Danish cleaning, security and catering group, in a potential $8.5bn deal that would be the biggest leveraged buy-out since the financial crisis started.
ISS, one of the world’s biggest private sector employers with more than half a million staff, was put up for sale this year by its private equity owners Goldman Sachs and EQT, the buy-out arm of Sweden’s Wallenberg family.
The company’s owners, which are being advised by Rothschild, Morgan Stanley and Goldman itself, are running a dual-track sales process and are still considering floating ISS in one of the largest initial public offerings in Europe in recent years.
Apax, which declined to comment on Wednesday, outbid two rival private equity consortia for ISS, one made up of Blackstone, Clayton Dubilier & Rice, Bain Capital and Nordic Capital and another of Apollo Management and CVC Capital Partners.
The deal is expected to be financed with about $3.5bn of equity and $5bn of debt. Apax is limited to investing little more than $1bn in any deal, so it must raise a large amount of the equity from its own limited partner investors before its two-month exclusivity period ends.
The private equity group is likely to call on the three sovereign wealth funds that recently bought a combined 10 per cent of its management company – China Investment Corporation, Singapore’s GIC, and Australia’s Future Fund – to provide some of the equity.
It is also expected to seek co-investment from some of its other big institutional investors, including AlpInvest in the Netherlands and the Washington State Investment Board and California State Teachers’ Retirement System in the US.
Apax, which is being advised by Deutsche Bank, has decided not to join another private equity consortium bid, after being frustrated by the few that it has been part of, such as the €8.3bn buy-out of Dutch semiconductor group NXP.
Goldman and EQT paid DKr21.9bn five years ago for ISS, one of the world’s biggest outsourcing companies, providing a vast range of services from front-desk receptionists to security guards, gardeners, catering staff and cleaners.
ISS has net debt of DKr32bn. The group was forced to abandon an IPO three years ago after it hired Goldman and Merrill Lynch to advise it on a flotation just as the credit crisis started in mid-2007. At the time it was reportedly aiming for a valuation of about $7bn-$8bn.
In the first half of the year, ISS’s operating profits increased 10 per cent to DKr1.88bn and its revenues grew 6 per cent to DKr36.2bn, mainly thanks to a string of acquisitions.
Apax has invested about 60 per cent of its €11.2bn fund – one of the biggest ever raised in Europe – and the buy-out of ISS is likely to force it to start raising a new fund next year.
The private equity group is considering a $4bn bid for Clal Insurance Enterprise, the Israeli insurer, which it could merge with Psagot, the Israeli asset manager it bought earlier this year. It is also competing with buy-out rivals EQT, TPG and PAI for Takko, the German discount clothing retailer.