Better Capital, a London-listed firm, is facing a big write-down on its first fund vehicle after taking a big loss on publishing business Reader's Digest and admitting that two of its other big deals are performing “significantly below expectations”.
The Jon Moulton-led firm had paid £13 million to rescue Reader's Digest from bankruptcy in 2010, using equity from its first fund, a £210 million, 2009-vintage. It subsequently invested a further £9 million of equity into the business, a spokesperson for the firm said. However, last week, Better sold the business to a strategic buyer for a “nominal” sum, according to a statement.
Better also said today that “two of the more material” portfolio companies in the fund have also been under-performing in recent months. It declined to specify exactly which businesses this meant. But the statement revealed that the two biggest businesses in Fund I – Gardner, a UK-based supplier of metallic aerospace parts, and Spicers, a wholesaler of stationery and office products, which together account for more than half of the fund's net asset value – are both expected to deliver lower profits than last year. m-hance, part of the Calyx Group, has also gone into the red, the firm added.
“Both companies remain profitable but, based upon current trading levels and the impact these recent issues have on the multiple-based valuations, it is anticipated that a significant write-down in the value of these companies will be recorded as at the 31 March 2014 valuation date and consequently it is probable that the net asset value of the 2009 Cell will decline by a material amount as at that date, ” Better said in its statement today.
Better added that the board “shares the frustrations expressed by Shareholders at the recent developments in Fund I and has received reassurances that the key issues are being firmly addressed”. This will include changes to the senior management teams at the struggling businesses, and also some additional resource for Better: it has already hired Thierry Bouzac, who it says has “considerable experience of undertaking operational turnarounds in the UK and Continental Europe”, and plans to further strengthen in the coming months.
Better insisted, however, that “there remains good expectation of a satisfactory outcome for Fund I”. Other companies in the fund include Fairline, Santia, and Omnico.
The firm’s Fund II has so far invested in three portfolio companies including Jaeger, City Link and Everest. These businesses are showing “demonstrable progress”, the firm said, adding that “it is probable that the net asset value of the 2012 Cell will be maintained or increased at the 31 March 2014 valuation date.”
At press time, Better shares were trading at 108.25p, up 0.75p.