BNP Paribas, JP Morgan, Merrill Lynch and Morgan Stanley have won the race to lead French electronics company Rexel's initial public offering, set to be the largest by a private equity-backed company.

The banks will also sell a €1bn ($1.3bn) payment-in-kind note, the biggest high-yield deal of its type in Europe, as reported by Financial News last week. A banker working on the flotation, which is expected to raise about €3bn, said it would be launched late this year or in the first quarter of next year. A flotation would come two years after Rexel was taken private by French investment company Eurazeo, US buyout firm Clayton Dubilier & Rice and Merrill Lynch's private equity arm in December 2004. JP Morgan, Morgan Stanley, HSBC, Royal Bank of Scotland and Merrill Lynch provided the private equity consortium with €2.1bn to buy the French company. Lazard, Morgan Stanley and Merrill Lynch advised the consortium, while HSBC and Rothschild advised Rexel. Rexel's float is set to exceed the £1.23bn (€1.8bn) raised in 2003 by UK telephone directory group Yell to become Europe's largest private equity-backed float and could become the world's largest, beating Japanese lender Shinsei Bank's $2.37bn (€1.87bn) IPO in 2004. The PIK note would be twice the size of the previous largest deal of its kind in Europe, a €550m transaction sold by Switzerland's Cablecom in October last year Much of the money from the PIK sale is likely to be used to pay a dividend to the backers before the company floats. The proceeds from the float will then be used to repay the note, providing an added attraction to investors as it would guarantee a quick return. PIK notes are a risky form of high-yield debt, mainly bought by hedge funds, which once leveraged can offer returns of more than 30%.