Cinven fears being stuck with big stake in lift business
Group seeks to trim exposure to Thyssenkrupp deal struck just as pandemic began
Cinven has told investors in its latest private equity fund that it may be stuck with an outsized stake in Thyssenkrupp’s lifts business for longer than is allowed under its agreement with them, according to a document shown to the Financial Times.
The UK private equity group has been trying to cut its exposure to the €17.2bn acquisition, one of the largest ever European buyouts. The deal was agreed in February just as the coronavirus pandemic hit the global economy.
Cinven and Advent, the private equity group it teamed up with to buy the business, have been trying to recruit more equity investors to avoid being left holding too big a stake, which could weigh on their funds’ performance and leave them with less money for future deals.
Cinven usually holds a maximum of 15 per cent of its fund in any one company but the Thyssenkrupp deal would drive it above that. Any investment above that threshold usually has to be sold down within a year.
Now it is asking investors to allow a rule change so it can invest more than 15 per cent of its €10bn fund in the company for more than a year, to give it more time to sell some of the equity.
The groups plan to fund the acquisition with about €7bn in equity and the remainder in debt.
Executives at the buyout groups have also considered selling the lifts business’s Access Solutions unit, two people familiar with the matter said.
A sale of the division, which makes stairlifts and platform lifts that are installed in wheelchair users’ homes, would reduce the groups’ exposure to the elevator deal.
However, in recent weeks some would-be buyers have been told that the private equity groups — which have not yet completed the acquisition — are not planning at present to sell.
“They’re working on every piece of the puzzle to take down the risk,” one private equity executive said.
Advent and Cinven declined to comment.
“There’s always one deal done at the very peak — this is the worst possible timing,” another person familiar with the deal said. “Nobody knew what was going to happen . . . [there’s] a huge equity cheque, a huge multiple.”
One pension fund manager, who was offered equity in the deal by Advent and Cinven after it was struck in February, said it was too risky. “There was hardly any appetite,” the person said. “It was such an expensive [deal]. It was agreed upon prior to Covid.”
While the buyout groups see the business as relatively recession-proof because of its long-term contracts to service and maintain lifts, the pension fund manager said that may not hold true in a serious downturn. “If the owner of a building is bankrupt, what’s the value of the [servicing] agreement?”
The debt used to fund the deal will be about eight times the business’ earnings, one of the highest levels recorded on a large European private equity buyout in recent years.
Advent’s investment committee assessed the possible impact of the virus shortly before committing to the deal, people present said at the time. They were reassured by the fact that lifts were still being serviced in downtown Wuhan during its lockdown, a sign of the business’s resilience, those people said.
The battle to offload risk does not necessarily imperil the deal, which is due to complete later this year.
“We still don't see any risk” that the deal will not go through, said Martina Merz, Thyssenkrupp’s chief executive, on a call with journalists in May.
Advent and Cinven have raised more than €2bn in equity from investors including the Abu Dhabi Investment Authority and Singapore’s sovereign wealth fund GIC, people familiar with the matter said. Those groups agreed to be involved before the deal was struck.