The Faber Report

Kinetic Concepts is Acquired By Private Equity

It’s the biggest leveraged buyout in quite some time, but a key question for investors in Kinetic Concepts is whether it will stay that way.

The company’s agreement to be purchased by a consortium led by private equity firm Apax Partners followed what I am told was a dalliance that was begun by Apax and resulted in more or less exclusive talks deigned to complete a deal.

That deal was completed at $68.50 a share in cash, but people close to the transaction have been quick to point to a low break up fee (1 percent) and a forty day “go shop” period as evidence that other potential buyers should view the door to a topping deal as open.

While the deal did represent a 52 percent premium to the stock’s average price over the last year, the multiple is not a record setter by any means, raising questions as to whether strategic buyers might be in a position to pay more.

As for this deal, it does not seem to speak to any real back-up in the credit markets. The leverage ratio comes in at a cool seven times EBITDA, which is at the higher end of what we’ve seen since private equity deals returned to the market and while the equity check is a big $1.5 billion, it is still less than 25 percent of the total price (including assumed debt).

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