Bain-owned MYOB to cut debt through notes offer

According to a regulatory filing, the five-year notes will pay floating rate interest payments on a quarterly basis, with a guaranteed minimum rate of 10% for the first four quarters. The margin is expected to fall between 6.70% and 6.90%. In the event of an IPO, holders of the notes will be able to subscribe to the offering at a discount to retail investors.

Bain acquired MYOB in August 2011 from Archer Capital and HarbourVest Partners. It paid A$1.3 billion - more than the initial A$1 billion asking price - after overcoming competition from KKR and a late bid from UK software firm Sage Group. Archer and HarbourVest saw a healthy return on an investment of A$450 million (then $296 million) made in 2009, securing the third-largest PE exit in Australia.

Banks' appetite for acquisition finance in Australia has weakened after several European lenders withdrew from the market or scaled back on their activity. The consensus is that it's difficult to persuade a bank to go beyond an EBITDA multiple of 4x even for a company with strong operational performance.

Both Bain and KKR were seeking a leverage multiple of around 6x for their MYOB bids, using a combination of senior and mezzanine debt. According to market sources, KKR managed to secure approximately 4.5x for the senior debt plus bridge financing for a retail note at 1.5x. Bain obtained a multiple of 5x on the senior debt plus a 1.5x PIK vendor note provided by Archer Capital and HarbourVest Partners.

The vendor note is regarded equivalent to equity so its inclusion took the equity portion of the deal past 50%, making the banks comfortable, yet Bain's upfront commitment was in the high 40s. There was a general expectation that the PE firm would look to refinance the deal once market conditions improved.

MYOB's products and services are said to be used by more than one million small- and medium-sized enterprises (SMEs) and accounting firms in Australia and New Zealand. It is investing in cloud-based technologies in order to further strengthen its position. The company claims to generate strong cash flow and benefit from a high proportion of recurring revenue.

Deutsche Bank, Morgan Stanley and UBS are joint structuring advisors and joint lead managers for the offer. ANZ Securities, Macquarie Capital and Westpac are also joint lead managers.

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• Topics
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