As the syndicated leveraged loan market experiences revitalisation, Silver Lake, a private equity firm, has set sights on raising 1 billion euros, approximately $1.1 billion. The funds are to facilitate the acquisition of Germany’s Software AG (SOWGn.DE), according to a term sheet seen by Reuters.
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About Software AG
Software AG is a reputable software developer and information technology (IT) platform provider based in Germany. The company’s operations span three sectors: Digital Business Platform (DBP), Adabas & Natural (A&N), and Consulting. Serving clients across various industries, such as banking, communication, energy, insurance, retail and transportation, it aids businesses in digital transformation processes.
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On the loan being raised
JPMorgan (JPM.N), Citigroup (C.N), and Banco Santander (SAN.MC) have a leading role in marketing this seven-year loan. It’s noteworthy that the loan is being offered at a 97 cents on the euro discount, with an interest of 500 basis points over the benchmark rate. Investors are expected to make commitments by the end of the month.
It’s common for private equity firms to seek larger acquisitions funding through banks. Banks generally provide the necessary financing before transferring the debt to external investors. Unfortunately, this approach faced a stumbling block last year due to a rapid escalation of interest rates. Banks found it difficult to profit from the debt underwritten during a period of cheaper money. As a result, they applied heavy discounts to entice investors and even halted new lending in certain cases.
Despite months of challenges, banks are now striving to reclaim market share. They’ve lost significant ground to private credit funds, which have emerged as a regular funding source even for large leveraged buyouts. Yet, banks continue to grapple with issues like a sharp decrease in the creation of new collateralised loan obligation (CLO) vehicles. These vehicles are traditional buyers of syndicated loans.
To ensure funding certainty, buyout firms are increasingly turning to private debt, although historically costlier.
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Interest in German opportunities grows
Earlier this year, Software AG encouraged shareholders to approve Silver Lake’s offer set at 32 euros per share, dismissing interest from competing buyout group Bain Capital. Software AG shareholders have until Monday to tender their shares to Silver Lake. The U.S. private equity firm stated last week that it had already secured 71% of Software AG’s share capital.
The above comes as Germany is attracting more investments from big tech and private equity groups post the Pandemic period.
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