Electra Partners, a UK buyout firm listed on the London Stock Exchange, has significantly improved performance, with its shares up 30 percent this year and its discount to NAV narrowing from around 40 percent last year to 28 percent.
Performance was driven by the firm’s ability to find exits, Electra said in an earnings statement, collecting £301 million in realisations for the year, compared to £286 million for the two previous years combined.
Electra’s shares closed at £18.42 on Wednesday. In the year to September 30, the share price ranged from £12.92 to £17.80.
The firm invested £150 million between 30 September 2011 and 30 September 2012, slightly more than the £136 million it invested in the year to 30 September 2011. In January, Electra acquired a senior debt package in Park Resorts, a caravan park operator, for £44.9 million from Lloyds Banking Group. Later in the year, the firm acquired two further debt packages in Park Resorts. In March, Electra acquired a 49.4 percent stake in Peverel Group for £22 million and in September, Electra used £30 million to acquire a portfolio of bank debt from an unnamed international bank.
Banks have been disposing of assets such as debt and fund positions and we have been an eager buyer of some of those.
The narrowing of the NAV discount is partly due to the firm’s performance and partly due to market conditions, Alex Fortescue, chief investment partner at Electra Partners told Private Equity International. “We see the discount to a significant extent as a reflection of market conditions, rather than anything else. The equity markets have had a reasonable run this year and hence the discount has narrowed a bit of the back of that.”
Total realisations for the year were £301 million, which was one-third of the value of the opening investment portfolio. “This unusually high level of disposals reflected the willingness of the market to pay full prices for high quality private equity assets,” Electra said in the statement.
Electra said its flexible investment mandate is one of the reasons the firm has performed well. “We can invest in controlled buyouts, debt, secondaries and so on. It’s still all private equity related investment activity, it’s just at different stages in the capital structure depending on where we think the best risk-reward balance is,” Fortescue said.
Electra benefited from this flexibility when it invested in senior debt for Park Resort, the firm said. Electra has
previously considered a controlled buyout in the sector.
“We decided we liked the sector but we didn’t like the entry valuations or the returns driven by a straight-forward equity deal,” Fortescue said. “We then became aware of a debt opportunity where a UK bank was seeking to reduce its exposure and exit its position. We are investing behind the same equity story, but we got in at a much lower price.”
The firm has no formal allocation to each of the different flavours within the private equity space, Fortescue, who spent 11 years at Apax Partners before joining Electra last year, said.
“We focus on deals on their individual merits and the mix becomes clear at the end of the year. However I think it is true to say that banks have been disposing of assets such as debt and fund positions and we have been an eager buyer of some of those,” he said.