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February 26, 2024
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Private Equity

Investment Banks Beat Out Private Credit in CVC’s Latest Buyout Deals

(Bloomberg) — CVC Capital Partners has opted to finance two of its latest buyouts with loans from investment banks, according to people with knowledge of the matter, beating out direct lenders in the process.

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The private equity firm financed its acquisition of Italian restaurant chain Gruppo La Piadineria with a €200 million ($218 million) loan from lenders including UniCredit SpA, Credit Agricole SA and Natixis, said people familiar with the deal, who weren’t authorized to speak publicly. Those lenders are expected to sell on some of the debt to a wider group of banks.

CVC also funded its acquisition of German vitamin and supplement maker Sunday Natural with about €200 million of financing from banks including Deutsche Bank AG, UniCredit and UBS Group AG.

The CVC deals are the latest indication of a comeback for traditional lenders, which are benefiting from calmer leveraged loan markets and the prospect of interest rate cuts. The revival means more competition for the $1.6 trillion private credit market, which boomed over the past 18 months as soaring rates and hung debt made banks cautious about underwriting fresh leveraged buyouts.

Spokespeople for CVC, Credit Agricole and Unicredit declined to comment. Natixis, Deutsche Bank and UBS didn’t respond to requests for comment.

Bank financing may provide private equity sponsors a cheaper cost of capital than direct lenders can offer — and is often from local banks that like and support the business. Pricing for the loan backing the La Piadineria deal was in the range of high-400 basis points over the Euribor benchmark, one of the people said. Unitranche pricing from direct lenders tends to be over 600 basis points.

There’s also geographical nuances, with direct lenders typically more cautious about deals in Italy, because of greater legal protections given to borrowers than elsewhere.

Read more: Banks Notch Up LBO Deal Wins From Private Credit Firms

For the banks, underwriting buyout debt is a lucrative and much sought-after business as it provides some of the most generous fees on offer in investment banking. At the same time, private lenders often aren’t particularly enthusiastic about consumer-facing businesses, as they are seen as more cyclical.

–With assistance from Kat Hidalgo.

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©2024 Bloomberg L.P.

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