Steffen Diel, Head of Treasury Finance, explains: “The acquisition in the form of a cash tender offer was effected in a highly difficult financial market environment. The ongoing sovereign debt crisis kept risk sensitivity and volatility of market prices and rates at high levels. In addition, banks were still engaged in deleveraging activities which limited their appetite for large funding tickets in M&A transactions.”
The Ariba acquisition was initially funded from SAP’s free cash and a €2.4 billion term loan facility. Within two weeks, on 22nd May 2012, the facility was signed with Deutsche Bank AG and J.P. Morgan as mandated lead arrangers (MLAs). It had an initial duration of 12 months with an extension option for another 12 months. Despite the difficult market environment SAP had a clear target of refinancing the term loan as quickly as possible via the Eurobond and US Private Placement (US PP) markets in order to optimise their financial flexibility and their maturity profile.
Diel continues, “based on well-established bank relationship management we rapidly syndicated the facility on 15th June 2012 to an additional four banks (Goldman Sachs, RBS, Société Générale and UBS) which, together with the MLAs, carried a volume of €400m each.”
For the preparation of the take-out financing transactions Deutsche Bank and J.P. Morgan acted as global co-ordinators and the other four banks as additional active book-runners on the Eurobond (Société Générale, UBS) and on the US PP (Goldman Sachs, RBS). In order to fully incentivise all banks, irrespective of the detailed distribution of the take-out financings, the fee structure on the overall refinancing volume was fairly balanced between the participating banks. After a thorough preparation phase and the set-up of a debt issuance programme (DIP), which secured the timely flexibility for the bond issue, two successful transactions were realised in November 2012. On 2nd November, SAP priced the largest cross-border US PP in market history ($1.4 billion).
Only a few days later on 6th November, the company priced a very successful Eurobond transaction with a volume of €1.3 billion. Market commentary was very favourable.
With its third US PP transaction ($1.4 billion) SAP has a total volume outstanding of $2.65 billion, which is the largest volume by a non-US issuer. SAP secured five tranches with maturities of five to 15 years to 33 investors, of which 17 were new to the SAP credit. Based on the highest rating of NAIC-1 coupons ranging from 2.1% to 3.5% were realised.
The subsequent Eurobond transaction was launched on the basis of the newly implemented DIP in two tranches (three and seven years) with spreads of 52bps (coupon: 1%) and 92bps (coupon: 2.125%) respectively. With a final order book size of €5.9 billion and a new issue premium of only 2bps over secondary market spreads the transaction is a remarkable further milestone in SAP’s capital market history.
These two successful transactions again show the funding power of an unrated issuer. Based on an excellent credit profile as well as an experienced, highly effective and efficient treasury team, SAP tapped the market with a considerable high total volume at attractive terms. As a result of these two successful take-out financing transactions SAP refinanced the complete targeted volume of €2.4 billion and fully repaid the Ariba term loan in November 2012.
As Diel concludes, “this M&A finance case is a perfect example of how the treasury organisation can add significant value as a business partner in strategic projects, in this case by supporting SAP’s growth strategy which enabled the company to complete the second cloud related acquisition within a few months only. With the preparation of a sound funding decision framework for senior management and the successful realisation of financing transactions, SAP’s Global Treasury optimally supported the company’s strategy even in a difficult financial market environment.”