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KKR-owned Stepstone has impressed lenders as a resilient market leader but buysiders looking at the deal had concerns about aggressive docs in pre-marketing and its heavy geographic concentration.

Founded in 1995, Stepstone operates a group of job classifieds brands, with around 550,000 average active job listings and revenues of around €1bn in 2023, it said. It has been part of Axel Springer since 2009, but is now being carved out again with KKR as majority owner and Axel Springer retaining a minority.

Banks have launched a €1.925m-equivalent dual-tranche 2031 TLB deal across euros and dollars to fund the buyout, with a minimum $500m dollar portion. The company will also raise a €300m RCF according to S&P.

A buysider praised the size of the deal, suggesting it would bode well for liquidity.

Net leverage is at 4.9x and marketed FY 24 EBITDA is around €390m, according to 9fin sources.

A second buysider said that after haircutting synergy adjustments, Stepstone’s net leverage was just under 6x.

Multiple sources flagged Stepstone’s pre-marketing docs as extremely aggressive, and pointed to a ban on lenders forming co-op groups, an increasingly common tactic when companies get into distress. For more context around co-ops and why they matter, check out our coverage here.

A second buysider said this was an important point to push back on, as it could create a worrying precedent if unchallenged. Four buysiders said they wouldn’t have progressed with the deal if this provision had still been included in the final doc.

Although the co-op ban has now been removed from general marketing docs, it does little to change KKR’s reputation amongst some lenders for aggressive documentation. Sources pointed to the whitelist for Dutch e-bike producer Accell as another example.

“There’s no need to accept that [co-op ban] from the sponsor,” the second buysider said. “It’s not a great way to start the relationship [with the company].”

One leveraged finance lawyer said this was a new feature for the European market, following 2024’s high-profile Altice and Ardagh co-op agreements.

That said, they questioned how enforceable the provision against co-ops actually was: “They are very vague with broad language which prohibits any lender organisation generally. Our team thinks in practice they don’t have legs.”

Lenders understandably didn’t want to put that theory to the test.

Complaints over documentation in pre-marketing weren’t limited to the co-op bans as sources also flagged the inclusion of aggressive baskets (which would allow significant incremental debt) and “no deemed consent” language in respect of transfers.

Stepstone has a clear dependence on Germany, the country in which it was founded, representing almost 60% of its revenues according to S&P.

Stepstone holds the German number one market position in the online job classifieds market at 39% market share. 90% of the top 450 largest German businesses use Stepstone's platform to advertise jobs, the rating agency added.

But this reliance was a concern for investors — especially in the context of recent headlines highlighting German economic weakness.

Volkswagen and Thyssenkrupp job cuts were particularly worrying as Stepstone hopes to expand market share in blue-collar industrial jobs.

“Our number one credit concern is geographic exposure,” the second buysider said. “We need to have a discussion internally whether we’re happy to take a punt on Germany over the next six months.”

Mitigating this, real GDP growth is expected to pick up in Germany and Stepstone’s main EMEA economies from 2025 onward according to the ratings agency.

But what if it takes longer than expected to recover?

Stepstone was praised for its flexible cost structure which has helped it navigate economic turbulence in the past — Moody’s points to 2023 as a case study. The company was able to sustain its EBITDA at approximately €330m.

The cost structure, with 35-40% variable costs (mainly advertising and traffic acquisition) provides cushion to protect margins during challenging business conditions, the rating agency said.

The second buysider said this variable cost structure works well for Stepstone, allowing them to “expand margins when revenues come down by slashing advertising.”

A third buysider agreed that the company has room for a downturn without impacting cash flow. Linking to this, Moody’s highlighted Stepstone’s pricing power given its “leading market position and better value proposition than its competitors like Indeed (owned by Recruit Holdings) and LinkedIn (owned by Microsoft).”

Despite this flexibility to lower costs, there was concern about getting marketing spend back to previous levels, given its importance for new business and what some sources saw as relatively low barriers to entry.

“It doesn’t take much to lose market share,” a fourth buysider said. “With a relatively modest marketing spend, Indeed were able to become number two or three in the market within a couple years. They were nowhere in the German market a few years ago.”

LevFin peer House of HR has been struggling in a “stalling macroeconomic environment,” according to S&P. But unlike House of HR (focused on specialty recruitment), Stepstone’s product offering could be seen as less unique — making it a possible loser from AI disruption.

Price talk for the euro and dollars tranches is E/S+450bps with OID of 99-99.5, which the first buysider described as “attractive” for a B1 name.

Using this 9fin loan screener tracking all priced 2024 euro deals rated B1 by Moody’s, the average margin was E+391bps.

Proceeds from the deal will set up a new capital structure for Stepstone, as it spins out from Axel Springer.

The first buysider said: “Axel Springer is a good company so we don’t expect any hidden land mines from the carve-out.”

Axel Springer retains the media side of the operation, which owns publications including German newspapers Bild and US news site Business Insider. But it will do so under a new structure as KKR exits.

Stepstone — as well as other divisions AVIV Group, finanzen.net and Awin — will be held as separate joint venture companies with KKR and CPPIB as majority shareholders.

Per reports, there will be a further €1bn TLB deal for AVIV Group next year.

KKR bought its majority stake in Axel Springer in 2019 for almost €3bn, but sold some of its shares off to CPPIB after it delisted the business from the German stock market in 2020.

Commitments are due 4pm London time on Wednesday 4 December.

BNP Paribas and KKR Capital Markets are joint global coordinators and physical bookrunners. Credit Agricole and CoBank are also physical bookrunners.

KKR, Kirkland & Ellis and BNP Paribas did not respond to requests for comment. Stepstone and CPPIB declined to comment.

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Lenders resist KKR’s co-op ban in Stepstone carve-out financing

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