Better Capital pays £1 for City Link

The turnaround specialist is to invest £40m in the courier company, whose fortunes are said to be slowly recovering after five years of significant losses.

London-listed Better Capital has acquired City Link, a logistics business owned by Rentokil Initial, for a symbolic £1 (€1.18, $1.55). 

Sometimes described as the “problem child” of Rentokil’s portfolio, City Link has posted significant losses every year since 2008. Better Capital is to invest £40 million in the business, which the firm says will provide more than sufficient funding to support its latest acquisition’s turnaround plan. 

City Link appointed a new management team last year, as part of a plan to restructure day-to-day operations and reshuffle its product offering. It posted a £26 million loss last year – an improvement on 2011’s £31 million – and reduced its loss for Q1 2013 by £4.6 million to £8.1 million. 

“I believe City Link has now turned the corner after five years of substantial losses. The business has made strong financial progress over the last two quarters. It now has a strong management team and we have found a very committed investor in Better Capital,” Rentokil chief executive Alan Brown said in a statement. 

I believe City Link has now turned the corner after five years of substantial losses.

Alan Brown

The company’s current management will continue to run the business, with managing director David Smith still at the head of the group. 

The sale of City Link, the gross assets of which were valued at £77.6 million as at 31 December 2012, will see Rentokil take a write-off of nearly £30 million. These will be topped by cash costs of around £10 million. The group is to focus on its pest control, hygiene and workwear divisions, it said in a statement. 

Better Capital funded the acquisition via its BECAP 12 vehicle, which closed in 2012 on £169.90 million. The fund’s portfolio also include Jaeger, a UK fashion retailer bought a year go, and Everest, a double glazing specialist that the firm took over this month. 

The firm continues to be traded at a premium to net asset value, a rarity in the listed private equity landscape. “We are distributing, rather than reinvesting proceeds as a permanent capital vehicle would do. We have no fees based on net assets and are a market leader in a very popular area [which is turnaround investing],” Jon Mouton, founder and managing partner of Better Capital, told Private Equity International last year. 

It announced a dividend to its shareholder in November last year, a first since 2009.