By all accounts, a group of private equity firms led by Apollo are working hard to submit a bid for Sara Lee, but there are plenty of question marks about whether such a deal will get to the finish line.
Sara Lee has long been in the sights of private equity. Last spring KKR came close to a deal for the company, but couldn’t ultimately meet the price demanded by management.
Recent reports are that an Apollo-led group might pay as much as 10 times trailing EBITDA— close to $19 a share.
People close to the previous attempts at a PE deal tell me at that price, the buyer would need to take out as much as $500 million in costs to make the deal become economically feasible.
Apollo may be banking on the belief that Sara Lee’s coffee business will attract interest from strategic buyers. While this may become the case, bankers tell me right now there is not an active dialogue about the sale of that business.
With a price tag approaching $13 billion, any LBO (leveraged buyout) of Sara Lee would be by far the largest the market has seen in years.
While the financing for such a deal may be available, the equity check required to get that financing is expected to approach $5 billion. That’s a huge slug of cash that will require Apollo to be joined by at least two other firms.
Such “club deals” are generally frowned on by the private equity firms’ limited partners, because such LPs (Limited Partnerships) may have investments in more than one fund making the investment and their concentration of risk in one name becomes very high.
While Sara Lee is taking Apollo’s interest seriously, it has not abandoned a previous plan to split the company into its meat and coffee businesses.
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