The only contentious points are the price talk, which is putting off some lenders, who are also sceptical about the liquidity of the €200m non-fungible tranche. Some also flagged high exposure to the banking sector, with the biggest client being Deutsche Bank. 

Apleona is marketing a €200m non-fungible TLB that matures in April 2028, in line with the €765m existing loan. The new facility pays E+ 475bps and is guided with 96.5-97.5 OID. The facility is rated B and B2 by S&P and Moody’s with stable outlook.

“The OID doesn’t seem that great in relation to secondary, but maybe the management is placing it more on the business fundamentals and stickiness than I am at the present time. Slightly on the fence on this one,” said one existing lender. 

Proceeds will be used for financing the acquisition of German peer Gegenbauer and the €75m repayment of the existing second lien loan. The acquisition is expected to close in summer 2023 and the new loan includes a ticking fee. 

“At first I was put off because it’s such a small illiquid tranche and the price talk isn’t inspiring. But decided to play on credit strength,” said a second existing lender. 

Alongside the underwritten TLB, the company is also using €317m rolled over equity from Gegenbauer and €25m cash on balance sheet to fund the purchase. Management did not give the new combined valuation of the business to lenders. 

The rolled over equity from Gegenbauer is considered a preferred instrument that sits between original equity from PAI Partners and the restricted group and therefore the sponsor did not go into a valuation exercise for the pro-forma group, management said on the lender call. 

“We think price talk is pretty decent,” said a third existing buysider.

The new acquisition, new deal and repayment of the second lien will deleverage the company to 3.4x total net leverage based on the combined €301m Pro forma Adjusted EBITDA LTM to end of December 2022, from current 3.8x level pre-merger. 

Leverage has already dropped a long way from the 4.9x level in February 2021 at the time of the PAI Partners secondary buyout from EQT for about €1.6bn. 

Apleona’s performance has been good since the takeover by PAI, with the top line growing by 8.9% CAGR between 2020 and 2022, and with 12% organic growth achieved in 2022. Adjusted EBITDA picked up 11% in the same period. 

“We like what the sponsor is doing with the business and there is not much paper out there so positive on this one,” said a fourth lender. A fifth lender has declined the new add-on as too small and not fungible and therefore too illiquid. 

Revenue for the combined group is expected to grow by 6.2% CAGR between 2022 to 2027 and Adjusted EBITDA by 8.7% in the same period.

No brainer buy

Gergenbauer is the fifth player in the facility management industry in Germany with 97% of total revenue from the country, so the acquisition will further cement Apleona's dominant DACH presence.

The combined company will bring 82% of revenues from the DACH region, and will become the number one facility manager in the Germany following the acquisition, jumping over the competitor Spie. Gergenbaeur and Apleona have over 240 overlapping locations pointing to a decent potential for optimisations and management has identified €23m of run-rate synergies with over €15m achievable in two years from closing, and potential for further additional €16m run rate benefit taking the overall cost savings to €39m. 

“There is a clear acquisition rationale and it strengthens that market lead,” said the second buysider.

Apleona’s multifaceted business includes service and technical staff, technological support and installations, and asset management. Around 65% of its services are of a technical nature, like waste management, ventilation, electricals, and the rest are integrated services including cleaners and security guards. 

“We are constructive, because we like the exposure to technical facility management compared to just cleaning,” said the third buysider. 

Buysiders praised Apleona as an automatisation pioneer, ramping up additional services by offering clients bundled deals.

The company enjoys 98% customer retention rate with only under 1% of non-profitable contracts and was able to win new outsourcing clients with FedEx, Bosch and dmk. 

Adjusted EBITDA margin was up 30 bps since 2020 to 6.8% in 2022. The asset-light business with under 1% of capex requirements maintains a high 91% EBITDA to cash conversion rate. 

Inflation defiant

One question mark for buysiders is Apleona’s dependence on its largest customers. The top 10 clients bring in 27% of sales with Deutsche Bank being the largest client.

Deutsche Bank recently renewed its contract until 2026, but the worries about the bank’s solvency last week don’t help. However, four lenders contacted by 9fin don’t see the company falling off the cliff if it loses Deutsche and while EBITDA would suffer, they believe Apleaona would be able to fill the gap with other clients. 

The company currently enjoys a historically high order backlog of over €3.3bn. Apleona also has renewed recently contracts with Postbank, IBM, DZ Bank to 2026 and ABB until 2028 while negotiations with Abbot to renew to 2026 are in final stage. Apleona has over 70% of large blue chip customers with average three to five-year contracts and average relationship of 16 years.

The company has not been affected by remote working conditions in its office portfolio, and has a mixture of landlord and tenants in its buildings. It is also diversified and has exposure to SMEs and industrial companies. 

Most of the contracts have limited inflation risk. One third of contracts are for additional services with short duration and cost-based pricing. From the rest, around 50% of total contracts have an inflation clause linked to CPI or minimum wage increases while 17% are fixed price contracts with no contractual passthrough. The business is asset light, therefore the biggest inflation risks are wage increases. 

Management assured lenders on the call that their pass-through clauses to customers exceed an expected 3.5% wage increase in Germany.

The company’s large exposure to Germany gives it a beneficial regulatory backdrop, according to the second lender, as the minimum wage is increased nationally, and is therefore widely accepted in the sector and by Apleona’s customers. 

Management also addressed questions about the shortage of technicians and skilled labour in Europe, highlighting outsourcing hiring from India and Dubai. Apleona has had a steady staff turnover ratio for four years which is below the market average, said the management. 

Loan documentation has not been changed outside of an added ticking fee and a new margin ratchet that opens at 3.25x total net leverage threshold margin. 

”Docs which are the same as the 2021 LBO are pretty terrible in terms of uncapped EBITDA [addbacks], no J-crew [blocker],” complained the first lender. “The 3.25x threshold is pretty close to the marketed leverage especially in relation to uncapped EBITDA [adjustments] which could bring leverage down if they don’t act in good faith for addbacks.” 

9fin’s Legal QT is available through loans@9fin.com. Please attach your copy of the SFA so that we can validate you have access to the documentation. ESG analysis is available for 9fin clients. 

Commitments are due on Friday (31 March) at noon UK time. 

Citi is active bookrunner on the deal with Deutsche Bank and UniCredit acting as passive bookrunners. 

PAI Partners declined to comment while Citi and Apleona did not respond to a request for a comment by the time of publication.