The Singapore government is buying a stake in the world's second largest scientific, technical and medical (STM) publisher, Springer Science + Business Media, reported to be more than 2 billion euros in debt.
The Government of Singapore Investment Corporation will take an 18 per cent stake in the debt-laden German company. The remaining 82 per cent will be taken by EQT, the private equity group controlled by the wealthy Wallenberg family of Sweden.
The deal is reported to be worth 2.3 billion euros (4.7 billion Singapore dollars) and includes about 2.2 billion euros of debt, according to Times Online and the Financial Times.
Goldman Sachs, Deutsche Bank, Barclays Capital and Unicredit have agreed to underwrite 1.72 billion eruos of new debt while EQT and GIC would invest about 450 million euros of fresh capital to repay debt at Springer, says the Financial Times.
Earlier, GIC bought stakes in the banking giants Citigroup and UBS when they were short of cash.
The Wall Street Journal says the deal represents:
- The biggest buyout deal in Europe in 18 months;
- GIC's first European co-investment;
- Possibly the beginning of a GIC push into the European markets.
Reports say Springer's British owners are selling their entire stake because no one was willing to buy a minority share on their terms. The deal "allows an exit for the two UK buyout firms that have owned the debt-laden business since 2003", says Reuters.
The Springer website says the deal "will give the Springer Group medium-term stability by removing imminent potential refinancing issues".
On the plus side, Singapore gains a top-flight international publishing business, which may be useful for a city-state aspiring to be a leading education and research centre.
While Singapore has two universities ranked among the top 300 in the world and is becoming a centre of biotechnology and financial innovations, its universities lag behind many others in academic research, according to the Times Higher Education Supplement and the Academic Ranking of World Universities. A stake in a top publisher may be useful. Springer is second only to Reed Elsevier.
But there is a price to pay.
Times Online reports:
Candover Investments and Cinven, the private equity groups, have today sold Springer, the leading academic business publisher, in a deal worth a total of €2.3 billion (£2 billion), including a mountainous debt pile…
The deal included about €2.2 billion of debt, suggesting that Candover, which refinanced three times between 2004 and 2006, used the cash generated for a further refinancing.
In 2003 Candover paid a total of €1.65 billion (£1.49 billion) for Kluwer Academic Publishers and BertelsmannSpringer, merging the two publishers to create Springer, the world's second-biggest publisher in science and business media.
Springer had initially planned to raise up to €500 million by selling as much as 49 per cent of the company to reduce debt, but offers failed to meet its valuations and it decided to sell the company as a whole.
Springer, based in Berlin, has 60 publishing houses in 20 countries and publishes 2,000 journals and more than 6,500 new book titles every year.
Candover Investments — which suspended investments for six months in April because of balance sheet problems, according to the Wall Street Journal — says:
The sale will generate cash proceeds of £11.4 million including carried interest for Candover Investments.
The Financial Times reports:
The transaction, confirmed on Friday, is Europe’s biggest private equity deal for more than a year. It will see EQT put up 82 per cent of the 550 million euros of equity investment and the Singapore sovereign wealth fund provide the rest.
The Springer deal ends a tortuous sales process by its two UK-based private equity owners, Cinven and Candover, which will receive only about 100 million euros for their equity.
Springer has been struggling under about 2.2 billion euros of net debt, which was due to start maturing next year, forcing the private equity groups to put the company up for sale.
Goldman Sachs, Deutsche Bank, Barclays Capital and Unicredit have agreed to underwrite 1.72 billion eruos of new debt, which they aim to syndicate by next month, while EQT and GIC would invest about 450 million euros of fresh capital to repay debt at Springer.
The four banks, which were already lenders to Springer, were prepared to underwrite the deal because it repays some of their debts, pays them a higher rate of interest and leaves the company with a more healthy capital structure.
The co-investment by the Singapore sovereign wealth fund underlines how big institutional investors are looking to invest directly in buy-out deals, which allows them to reduce the fees they pay and to build a more selective portfolio.
Analysts think the likely long-term future of Springer is to merge with Informa, its UK rival, which last week said it had walked away from considering a takeover of its German rival after pressure from its investors.
EQT was advised by Deutsche Bank and Barclays and Unicredit, while Springer was advised by Goldman Sachs and UBS.
The deal values Springer at about eight times earnings before interest, tax, depreciation and amortisation. That is similar to its listed UK rivals, Informa and Reed Elsevier.
Cinven and Candover have made a profit of 1.7 times their combined 600 million euros of equity investment in the company, after taking on more debt in three refinancings to pay themselves big dividends. They said the deal had made a 29 per cent annual return.
The two buy-out groups would have faced big hurdles to putting more money into the company themselves because Springer was bought by older funds that have little capacity left for new investments.
The Springer website says:
EQT and GIC have agreed to inject new equity into the Springer Group, to strengthen its balance sheet and decrease the overall cost of funding. A refinancing agreement with a syndicate of banks will give the Springer Group medium-term stability by removing imminent potential refinancing issues.
The acquisition is subject to examination and approval by European, US and national competition authorities. This process is expected to be finished by mid to late January or early February 2010.
The group publishes around 2,000 journals and more than 6,500 new books a year, and has the largest STM eBook Collection worldwide. Springer has operations in about 20 countries in Europe, the USA, and Asia, and has more than 5,000 employees. In 2008, it generated annual sales of around 892 million euros.
The EQT website says:
EQT V intends, together with Springer’s management and GICSI, to drive the transformation to an online STM publisher as well as to further expand the market leading STM book publishing business.
The EQT website adds:
EQT V was launched in 2006 and makes controlling investments in market-leading, medium-sized companies in growing industries in Northern Europe. The committed capital of EQT V is 4.25 billion euros.
The Fund backs established businesses with strong market positions, clear competitive advantages and a strong potential for future sales and earnings growth. Investments are primarily in Denmark, Finland, Norway, Sweden, Germany and Warsaw but may also be made in Austria, Belgium, the Netherlands, Luxembourg, Switzerland, Romania and other parts of Eastern Europe.
The Fund often seeks investment opportunities in connection with corporate spin-offs, succession issues or when families seek a partner for international expansion, larger add-on acquisitions or repositioning of the company. Public-to-private transactions and secondary buy-outs are also considered.
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