Elis (ELISGP; Ba1 Pos/BBB-) Reuters reports offer made to Vestis

See below for summary of all BS relevant comments from raters and the company. Regarding if we need to price a (rounded up) 2x uptick in BS leverage - i.e. how will it finance - its tough for us to make a firm call given recent history is mostly smaller bolt-on M&A financed through cash. To pull larger acquisitions we head back to the 2017 acquisition of British co, Berendsen, for £2.2b which was financed with a €1.9b bridge loan. It slowly refinanced that over time using loans, convertibles and shulds. We are bit more suspicious of full debt use now given it is has theoretically just achieved IG status (leverage is in Moody's upgrade threshold according to our calc's) - unclear if it will protect that by using equity financing. Regardless integrating Vestis will be watched given that co's poor performance and margin dilution to group. If full debt funding is used we expect Moody's will move to neg. outlook. S&P will be in a tough spot and may stay on IG to save face while watching how it delvers from there. Reminder this is all still reports from insiders and no information if Vestis will accept the offer.

• Moody's in October 2023 moved to pos. outlook on Ba1, It saw upgrade when gross debt/EBTIDA fell below 3x, deleveraging happening on a expected €150m/yr in debt repayments and earnings growth. It added ratings reflect it "will continue to pursue a conservative financial policy, focused on debt reduction". We see gross currently at 2.8x, pro-forma of acquiring Vertis moving to north 4.5x. Moody's had downgrade above 3.5x.
• S&P in Nov 2023 upgraded it to BBB- Stable. It say it on track to meet upgrade leverage of 3x with expectation for S&P adj. leverage of 2.6x by year-end. It adds "We believe the company will continue to make bolt-on acquisitions to expand and strengthen its market positions, but we do not anticipate large debt-funded acquisitions or shareholder distributions that would delay Elis from this deleveraging path.". This is bolt-on in the sense it is adding a geography in same services to current but is not small - Vestis is ~half the size of Elis

• Company target is for getting net to 1.8x by year end, it was at 2x in June. S&P has company reported 2x at its adj. 2.5x for reference and we have it at our gross 2.8x which is what Moody's is likely to be closer to. As we said we don't expect move into 1.8x by YE needing any gross paydowns (seasonal FCF and EBITDA growth should do the work).
• It was asked about leverage further out in FY25 and it responded with "it's too early to answer to your question. We will see, depending on the evolution of the type of acquisition and the condition on the market and so on, we'll decide later what will be the cash allocation in '25 and the years after." S&P expected it to continue deleveraging in the years following....above is not indicative of any plans to go below 1.8x.
• It has been doing small bolt-on's and last earnings call was indicative that Asia would be its target - again using small co's to consolidate the market. It's close to non-existent there as well. It spent a total of €82m in M&A last year to put size in context.