It will certainly increase average private credit deal sizes over Q4 2023, already skewed in Q3 2023 by a handful of (albeit smaller) jumbo deals. 

And, for all sources, the club element of the deal marks a distinctive shift in private credit relationships. 

“Clubbing is better for risk sharing, for portfolio concentration, for many things,” said the first source.

Part of the club

The club element of the deal was an interesting one, for the debt’s sheer heft made it tricky for any one lender to take 30% and, with that, lead the negotiations. 

Instead, a group of lenders within the club were able to cooperate with one another enough to act as a single entity, according to a third source close to the deal. This changed the lender dynamic from the hallowed lender-sponsor relationship to an arguably just-as-important lender-lender relationship, with those not part of that relationship left out in the cold in more of a book-building process.

Indeed, what put investors off was not the credit itself but the very club nature. A fourth source told 9fin that €1bn deals were attractive as it was still possible on a €250m ticket to have some influence, but that a €4.5bn deal made this impossible. 

The sponsors were nonetheless able to get away with a rarely seen five-handle pricing on the unitranche debt (albeit with a 98 OID), thanks to the deal’s magnetic pull. 

“There was a lot of enthusiasm for the credit so not the most difficult capital raise,” said the first source. Investors have pointed to Adevinta’s strong underlying assets and robust business model.

The bookbuilding element also forced down pricing. With ticket sizes as low €200m, it was possible in this deal for sponsors Permira and Blackstone to decide not to work with certain lenders if they did not play ball, without risking a substantial loss to the entire debt on offer.

Valuation issues

Before Adevinta, the largest European private credit deal was software provider Access Group’s £2.3bn cov-lite refinancing in the summer of 2022, also priced at a spread of 575bps. For some, Adevinta marks a return to those heady times, but even more so as it is an LBO. 

“Valuation issues have marred 2023, it’s been the single biggest issue for the LBO market in Europe,” said the second source familiar with the deal. Indeed, 2023’s earliest jumbo deal, the proposed $5.5bn unitranche backing Carlyle’s acquisition of US healthcare analytics business Cotiviti, fell over due to valuation issues.

Like the first in a line of dominoes, the impact of this problem has been witnessed again and again in the LBO market, from the very large, such as BC Partners’ planned sale of IT services provider, VetPartners, to the far smaller, such as Valedo Partners’ intended auction of Prosero Security in Sweden. 

Although valuation issues are far from behind us (even with Adevinta, the incoming sponsors spent weeks of November 2023 at investment committee renegotiating their original offer price), the fact that Adevinta was able to resolve some of these and get the deal away is an important bellwether.

“Markets are stabilising, rates are not necessarily coming down, but they’re not expected to go up again, and we expect a greater meeting of minds on valuations going forward,” said the second source familiar.

It is also important to recognise that few 2023 LBOs have collapsed due to lack of availability of debt. As with VetPartners, many of the deals that chose to can the LBO, did so in favour of a refi.

“Lenders are still ready and willing to put money to work,” concluded the second source. 

Adevinta’s new debt is structured as a €4.5bn unitranche facility paying Euribor + 575bps, with a 98 OID. It is topped with a €250m revolving credit facility. Based off the company’s full-year EBITDA of €650m reported in company results, this would indicate leverage of almost 7x. However, EBITDA for the basis of calculating the debt may well have been higher, 9fin sources agreed.

It is held by a club of lenders that include PSP Investments, Apollo, Blue Owl Capital, Caisse de Depot et Placement du Quebec, Oaktree Capital, Amundi, Goldman Sachs, HPS, ICG, Sixth Street, Blackstone Credit, GIC, the Canada Pension Plan Investment Board (CPPIB) and Arcmont.

Apollo, CDPQ, ICG, Arcmont, Oaktree, Sixth Street, Blackstone, GIC, Goldman Sachs and Amundi declined to comment, while PSP, Blue Owl, HPS and CPPIB did not respond to requests for comment.

European deal pipeline

Some fairly public situations are now gone from the European deal pipeline, not least Adevinta but also the LBO of Partners Group-owned software business Civica, which sold to Blackstone. The £1.25bn debt backing the deal was put in place over the summer with a portability clause, held by a club of lenders including Arcmont, GIC, Goldman Sachs, Golub, and ICG.

They are nonetheless survived by other large deals such as IRIS Software’s £1bn proposed debt, with sponsors KKR, CVC, Goldman Sachs and Leonard Green still in the running, and the sale of German metering business Techem. 

There are 38 deals across the UK, Europe and the Nordics in 9fin’s pipeline, as well as a number of freshly closed situations. 9fin clients can click here for the full named and detailed list of details, or subscribe to 9fin Private Credit by emailing subscriptions@9fin.com.