The Rise of Unitranche in Germany

Germany follows the UK and France by utilising unitranche financing from debt funds

January 29, 2015

Over the last few years, non-bank lenders, primarily debt funds, have provided an increasing share of leverage buyout (LBO) financing across Europe. Unitranche funding for new LBOs or refinancings in Europe has more than doubled in 2014 to over 60 transactions. Debt funds are now prevalent in most middle market M&A processes (above €10m EBITDA) involving private equity buyers in the UK and France. Their presence is also increasing across the rest of Europe, particularly in Germany where 13 unitranche transactions were completed in 2014.

Traditional German Financing Market

Debt funding for middle market LBOs in Germany has typically been provided by traditional bank lenders, such as Commerzbank and DZ Bank, and Landesbanks. Landesbanks are state-owned regional banks, unique to Germany. There are five large Landesbanks remaining after the financial crisis – BayernLB in Munich, Helaba in Frankfurt, HSH in Hamburg, LBBW in Stuttgart and NordLB in Hannover. There were over 50 senior debt transactions in Germany in 2014 with club deals accounting for the vast majority. Foreign headquartered banks, keen to increase their German exposure, have also provided significant liquidity growth in the last 24 months. Baird’s European Debt Advisory practice has seen typical senior debt multiples for its middle market transactions around 4.0x EBITDA.

Selected Traditional Bank Lenders / Landesbanks

Selected Traditional Bank Lenders

Selected Foreign Bank Lenders in Germany

Selected Foreign Bank Lenders

German Mittelstand businesses, recognised for their engineering, export content and niche positioning, employ 70% of the country’s private sector workforce. The lack of available Mittelstand buy-out targets has kept German middle market M&A activity behind that of the UK and France. However, when acquisition targets are available, we have seen debt funds offer increasingly flexible unitranche packages as an alternative to traditional senior debt.

Selected German Debt Fund Transactions

The number of unitranche transactions tripled in Germany in 2014 compared to 2013, making it the third largest European debt fund market after the UK and France. These three countries accounted for 85% of all European unitranche transactions in 2014. Private equity firms have opted for unitranche financing in sectors, such as consumer and technology, where significant capital expenditure is required to implement growth / roll-out strategies:

  • Acquisition of Hussel, a confectionary specialist, by Emeram Capital
    • ~€30m unitranche financing from Avenue Capital with Berenberg as super senior lender
  • Acquisition of Sausalitos, a restaurant chain offering Californian-Mexican food, by Ergon Capital
    • €27.5m unitranche financing and €5m capex bond from Kartesia and European Capital
  • Acquisition of Performance Interactive Alliance (PIA), comprising four digital marketing businesses, by Equistone
    • Unitranche financing from Ares to complete the four way merger with combined revenues of €140m
    • Two add-on acquisitions (DYMATRIX and SoQuero) already completed within 7 months
  • Refinancing of Intergenia, a supplier of web hosting and server solutions, to provide an acquisition / capex facility
    • €82.5m unitranche financing from Hayfin, Highbridge and Goldman Sachs Private Capital
    • Intergenia subsequently sold by Oakley Capital to HEG in December 2014 for €210m
  • Refinancing of Arwe, a provider of outsourced car care services for car rental providers, to support growth
    • Over €40m unitranche financing from Alcentra; Arwe owned by Triginta and M Cap Finance


Selected Debt Funds Approached in Baird Processes in Germany

Selected Debt Fund Approached in Baird Porcesses in Germany

Evolving Debt Fund Proposition

Debt funds offer a deep pool of capital with considerable flexibility in terms of structuring, hold levels and breadth across the capital structure. Given the significant capital invested (and due to be invested) in debt funds, they have been able to offer larger unitranche commitments in Europe, particularly towards the end of 2014:

  • ~£250m from GSO Capital for the acquisition of CRH’s UK concrete and UK / US clay business by Bain Capital
  • £187m from Ares & GE Capital (ESSLP unitranche facility) for the acquisition of Open GI in the UK by Montagu
  • €170m from Macquarie, Tikehau and Hayfin for the management buyout of Groupe Salins in France

Increased competition within the debt fund community has allowed the negotiation of better terms and lower pricing. Debt funds offering unitranche facilities typically have the following advantages compared to traditional financing structures (‘senior debt only’ or ‘senior debt + mezzanine’):

  • Higher leverage, typically 1x EBITDA higher than ‘senior only’ facilities
  • No or much lower amortisation, allowing more retained cash for growth and investment
  • Greater flexibility on covenants – higher headroom and potential for covenant-lite
  • Accelerated credit approval process with single loan agreement embracing all facilities
  • No need for syndication and ability to scale up commitment for add-on acquisitions
  • Increased competition when debt funds provide the term loan ‘b’ piece of structures within a club deal

Unitranche facilities have the following disadvantages compared to traditional financing structures:

  • Higher pricing / margins with blended rate of LIBOR + 6.5% to 9.0% (1.0% floor)
  • Requirement for inter-creditor arrangements


Outlook for the German Debt Market

The traditional German banks are mixed in respect of the threat that debt funds may have on their leverage finance business; some appear unconcerned, whereas others have seen deals ‘lost’ to debt funds. Baird expects that traditional bank lending will continue to account for the majority of LBOs and refinancings in Germany. However, the increasing adoption of unitranche financing and the competitiveness of debt funds will continue to provide optionality and flexibility for private equity firms and their portfolio companies.

For more information about this article or Baird, please contact:

Paul Bail
Paul Bail
Managing Director
European Debt Advisory
Global Investment Banking
+44 207 667 8271
  Vinay Ghai
Vinay Ghai
Managing Director
Financial Sponsor Coverage
Global Investment Banking
+44 207 667 8225
   Howard Lanser
Howard Lanser
Managing Director
Head of Debt Capital Markets
+1 312 609 5478
 Sven Harmensen
Sven Harmsen
Global Investment Banking
+49 69 130 149 56
   Tahseen Siddique
Tahseen Siddique
Vice President, M&A Research
Global Investment Banking
+44 207 667 8402

Baird is a leading middle-market investment bank serving the strategic and financing needs of our global client base. Baird’s Debt Advisory group works seamlessly from one global, integrated platform with our industry sector bankers and our M&A and equity product specialists to offer clients unconflicted and objective capital structure advice. Baird maintains strong relationships with the leading middle-market sources of debt capital, which Baird brings to bear for its clients raising capital for sell-side and buy-side M&A transactions, recapitalisations, refinancings, and specialty lending situations including cross-border financings. Since 2010, Baird has advised on over 20 M&A transactions in the DACH region and has utilised Debt Advisory services in over 25 transactions across Europe, including:

DBAG Tombstone Moventas Tombstone Faster Tombstone VPS Tombstone LMF Tombstone

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