Medline Industries' record-breaking buyout by a trio of private investors earlier this month has investment bankers sharpening their pencils.
The healthcare supplier's near $34 billion sale to Blackstone, Carlyle, and Hellman & Friedman will feature roughly $17 billion in debt financing, and the rest in equity, sources familiar with the sale told Insider. Bankers are expected to spread the debt among the high-yield bond and leveraged loan markets, and may also tap multiple currencies such as dollars and euros to support the acquisition.
Medline's buyout is the largest private-equity purchase in healthcare, and the largest overall since the financial crisis of 2008, according to Refinitiv data.
Given its sheer size, dealmakers view the financing as a litmus test, of sorts. Not only will Medline's financing measure the depth of an investor base eyeing higher-yielding opportunities, but if successful, the debt for Medline may set the stage for a surge in gargantuan buyouts.
Spokespersons for Carlyle, Hellman & Friedman, and Blackstone declined to comment. A spokesperson for Medline did not respond to a request for comment before press time.
"Our own M&A pipeline in the last couple of months has really taken off, so we're looking at a very active third and fourth quarter," Ted Swimmer, the head of corporate finance and capital markets at Citizens told Insider. "I also think companies would like to explore opportunities ahead of any potential tax change at the end of this year."
Indeed, a proposal from the Biden administration to hike capital gains tax could spur companies to advance any potential sales plans to avoid forking out the extra tax costs. And with $1.6 trillion in cash at their disposal, according to Preqin data, private equity firms are well-placed to put that money to work.
'Disruptions create opportunities'
While the Fed's loose monetary policy has kept borrowing costs low and enabled companies to binge on cheap debt, buyout titans like Blackstone and KKR waited patiently for markets to heal last year before ramping up their M&A plans.
With recovery now seemingly in full swing, however, it appears private equity is ready to pull the trigger on larger purchases.
"It's an extremely frothy market. Funds have liquidity, and they're actively looking to buy," said Gary Blitz, the co-CEO of AON's M&A and transaction solutions arm, who also focuses on tax-based insurance.
Thoma Bravo cut an $8 billion equity check to fund its $12 billion purchase of tech firm Proofpoint, Insider reported last month. The roughly $3.4 billion in debt financing to support that deal is currently on investors' desks in the syndicated loan market, sources have said.
The tech-focused investor also penned a $2.3 billion loan from direct lending firm Owl Rock Capital to fund its $3.75 billion buyout of Calypso Technology, sources told Insider in April.
Medline has also obtained a $1 billion commitment from Abu Dhabi Investment Authority and an investment from Singapore's sovereign wealth fund GIC, alongside the private equity firms, Bloomberg reported earlier this month.
"After a scenario of volatility, you typically see lots of M&A. Sometimes, disruption creates opportunities for companies looking to restructure or sell," David Moffitt, the co-head of US credit management at asset manager Investcorp, told Insider.
Credit markets, meanwhile, remain accommodative.
Investors are clamoring for more funding opportunities linked to M&A as these deals typically offer greater returns.
And big buyouts like Medline traditionally involve significant sums of new money in the bond and loan markets.
"Credit is loose everywhere and evaluations are ridiculous," said Christopher Zook, chairman and CIO at CAZ Investments. "Sponsors can get any amount of capital they want and leverage it however they want."
Importantly, however, buyout funds are injecting significant equity into these investments. Medline's getting 50% in equity, while Thoma Bravo's $12 billion Proofpoint purchase was funded with roughly 80% in equity.
But not since energy company TXU's $45 billion buyout by KKR in 2007, has the capital markets seen a deal the size of Medline's. In fact, the largest healthcare-linked buyout was also pre-crisis, when Bain and KKR bought HCA for roughly $32 billion in 2006, Refinitiv data showed.
"This is the largest we've seen in a long time," Citizens' Swimmer said on Medline. "But I think the financing is going to get done well. It shows the depth of the bank market to take on a transaction this big and I think it'll potentially give more sellers the motivation and understanding that you can do large transactions."
