UK private equity group Apax Partners is in advanced talks about a $1.8bn buy-out of Advantage Sales and Marketing, a California-based sales and marketing agency, which would be the latest “pass-the-parcel” deal between buy-out groups.
Advantage Sales and Marketing, a provider of services ranging from shelf-stacking to customer research for retailers and consumer goods groups including Kroger and Unilever, is owned by Bank of America and JW Childs.
The talks with Apax continued into the US Thanksgiving holiday on Thursday, but a deal could be announced before the weekend, according to a person familiar with the situation.
Critics say these kind of “pass-the-parcel” deals leave investors in the buyer and seller holding the same asset with a large chunk of value taken out in fees and carried interest, a share of the profits. In the US, there is a suspicion that private equity groups are rushing to sell assets before taxes rise.
“Carried interest is one reason for pass-the-parcel deals in the US, where people are locking in gains before the tax regime changes,” said Josh Lerner, professor of finance at Harvard Business School.
Secondary buy-outs, in which private equity groups sell a company to each other, have accounted for more than a quarter of all buy-outs so far this year, a record, according to Thomson Reuters.
Advantage Sales and Marketing was founded in 1987 and now has more than 30,000 employees and 66 offices in the US and Canada. It is expected to make $1bn of revenues and $180m of earnings before interest, tax, depreciation and amortisation this year.
JW Childs is a Boston-based group investing in consumer and healthcare companies that owns Sunny Delight, the drinks producer, and NutraSweet, the sweetener maker. Merrill Lynch’s investment in Advantage Sales and Marketing passed to Bank of America after the two banks merged.
Apax has done several deals in the past month, including its €923m ($1.2bn) sale of Ifco Systems, the German maker of reusable plastic food containers, to Australia’s Brambles, and its buy-out of Psagot Investment House, Israel’s biggest asset manager with Shk139bn ($38bn) under management.
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