Silverfleet Capital, former buy-out arm of Prudential, has completed a €215.5m (£186m) buy-out of Kalle, the German maker of sausage casings, after a long struggle to raise debt from a consortium of banks at “eye-watering” margins.

The deal makes Silverfleet the third private equity owner of Kalle, which Montagu acquired in 2004 from CVC Capital Partners.

In one of the biggest deals in Europe’s dormant buy-out market this year, Silverfleet raised €133m of debt from a consortium led by Bank of Ireland and including Lloyds, NIBC, GE Capital, Rabobank and DZ Bank.

The debt will pay interest of 425-475 basis points over Euribor, almost double the cost of financing that was widely available for buy-out deals during the debt bubble.

Neil MacDougall, Silverfleet’s chief executive, said: “The margins [on the loans] are eye-wateringly expensive. But the problem is that no one really knows what the market norms are any more, because there have been so few deals done this year.”

About 18 banks were approached about the deal. The defensive nature of the food and beverage industry means banks are more willing to finance leveraged buy-outs in the sector than in more risky areas, such as retailing or manufacturing.

Kalle, which makes artificial sausage cases and sponge cloth, employs 1,200 people. It has plants in Germany, Hungary and the Czech Republic and has expanded with a factory in the US.

It is the first deal by Silverfleet’s new €665m buy-out fund, raised this year. The London-based group specialises in buy-and-build investments and plans to expand Kalle, which had revenue of €200m last year, with add-on acquisitions. Likely areas for diversification include the hot dog peelers sector in the US and the collagen sausage casings market.

The €3.5bn sausage casings market has been expanding at about 3.1 per cent a year.

The sale will generate a return of more than twice Montagu’s initial equity investment.
● In a separate move, Montagu, the former buy-out arm of HSBC, is also looking to sell Survitec, the Belfast-based maker of life rafts, inflatable vests and flight suits for fighter pilots, with a target price of about £200m-£300m.

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