Here's how non-specialist audiences in Britain are currently being treated to “information” about private equity.
In June, the 10 o'clock news programme on state-owned TV channel BBC 1 broadcast the story that Ford Motor Company was selling UK subsidiaries Jaguar and Land Rover. Ford, the BBC reported, had decided to look for a new owner for the two iconic marques because funding the development of new models would simply be too expensive. Trouble was, the programme explained, any other car marker would sooner or later run into the same problem, meaning that none of Ford's competitors would likely show much interest.
Which leaves just one alternative, says the reporter: selling the assets to a private equity bidder. Over to Tony Woodley, general secretary of the T&G trade union and a man not known for a fondness for financial sponsors, who declares: “If the only choice is the asset-stripping private equity option then there should be some form of direct government intervention to make sure these manufacturing champions, these iconic brands and a major plank of British manufacturing industry are secured for the longer term, both for jobs and the economy of our country.”
That's the end of the report. No mention of the fact that last time the government intervened when a UK car maker – Rover – attracted the interest of a private equity firm – Alchemy – as a potential buyer of last resort, the outcome was not a happy one. At the government's behest, Rover was sold to a group of Birmingham-based businessman instead, who took it on with £500 million of vendor finance from BMW and proceeded to drive the business into a ditch.
But never mind that. “Government intervention” is Woodley's preferred way forward, and the BBC makes no attempt to explain what this might mean in practice. Nationalising Jaguar? Leaving Land Rover to fend for itself as a stand alone concern? Subsidising Ford with taxpayers' money? Does anyone even care?
Maybe not, as long as the British public is reminded of the one thing that must never ever happen: leaving the companies to “asset-stripping private equity”. And now the weather.
BC SEALS $16BN INTELSAT DEAL
Publicity-shy European buyout firm BC Partners has followed its acquisition of a UK estate agent by agreeing to buy Intelsat, the world's largest commercial satellite operator. It is the firm's biggest deal to date. BC agreed to pay $5.03 billion to acquire a 76 percent stake in Intelsat, according to a statement, while assuming $11.4 billion in debt. The company's previous owners Apax Partners, Permira, Apollo Management and Madison Dearborn will retain the remaining equity. They bought the business in 2004 for about $3.1 billion and a year later added PanAmSat, a rival satellite operator owned by Kohlberg Kravis Roberts. The four firms could realise a tenfold return on their original investment with the sale to BC, according to Bloomberg. It is the second highprofile deal completed by the notoriously low-profile BC Partners in a matter of months. The buyout firm, which is currently investing a €5.5 billion buyout fund, also recently bought UK estate agent Foxtons.
MID EUROPA IN €1.4BN AUSTRIAN DEAL
The Central and Eastern Europefocused private equity firm, alongside France Telecom, has bought Austrian mobile company One. The deal, at €1.4 billion, is Austria's biggest leveraged buyout in the industrial sector to date. One has been bought from German energy company E.ON, Norwegian telecoms company Telenor, and Danish telecoms company TDC. Mid Europa will own 65 percent of the company while France Telecom will own the other 35 percent. One is Austria's third biggest mobile operator with two million subscribers. Austria has become a more active market for large private equity investments. Last December, New York-based Cerberus Capital Management bought Austrian bank BAWAG PSK from the Austrian Trade Union Association for what was thought to be €2.6 billion.
ABN AMRON SNAPS UP DUNLOP AIRCRAFT TYRES
Wealthy Frenchman Rene Charvillat has sold Dunlop Aircraft Tyres, a UK maker of tyres for the aerospace sector, to European buyout firm ABN AMRO Capital for what is thought to be £40 million (€59 million, $79 million). The firm bought a 74.6 stake in the business while the management team, led by CEO Stuart Smith, owns the other 25.4 percent. Paul Southwell, managing partner of ABN AMRO Capital's UK buyout team, said: “We fought off some trade interest in Charvillat's auction of Dunlop – and some private equity competition from LDC and Barclays Private Equity.” Dunlop designs and manufactures tyres, principally for commercial aircraft, and generated sales of £25 million in 2006.
BARCLAYS BUYS KERMEL FROM ARGOS SODITIC
Barclays Private Equity has bought Kermel, a maker of aramid fibres for protective clothes, from Geneva-based Argos Soditic. Argos, which bought the business for €15 million ($20 million) in 2002, said it has made a return of twelve and a half times its original investment and an internal rate of return of 88 percent. Barclays has previously bought two other companies from Argos: French stain removal business Eau Ecarlate in 2002 and medical equipment business Saime in 2004.
BAIRD LANDS RECRUITMENT BUSINESS
London-based Baird Capital Partners Europe has bought Aston Carter, a UK recruitment consultancy business, for £13 million (€19 million, $26 million). The investment comes out of Baird's seventh fund, which has £200 million of firepower, and which is more than 75 percent invested. Aston Carter provides recruitment services to primarily bluechip global clients including Barclays Capital, Morgan Stanley, KPMG and Ernst & Young. The recruitment sector has been attracting more and more attention from the private equity market. Private equity deals in the sector in the UK in 2006 amounted to more than £266 million – more than ten times the 2005 total, according to IE Consulting.
BLACKSTONE BUYS UK TRATTORIAS
A Blackstone Group portfolio company, UK restaurant chain Tragus, has bought Italian restaurant chain Strada for £140 million (€206 million, $277 million). Blackstone bought Tragus for £267 million in December 2006. The Strada deal is the second acquisition the business has made under Blackstone's ownership, after the acquisition of the Ma Potters chain in February 2007. Tragus was recently trumped by property entrepreneur Robert Tchenguiz in its £96 million bid for Spanish restaurant chain La Tasca. It is thought that Tchenguiz attempted to trounce Tragus in the Strada deal as well.
EQT MAKES DANISH FAMILY PURCHASE
Northern European private equity firm EQT has bought out Cimbria, an industrial engineering business, from its Danish founders for an undisclosed amount. The founders, Sven Toftdahl Olesen and Ole Toftdahl Olesen, will keep significant stakes. The deal is the fourth investment from EQT's Opportunity Fund, which closed in 2006 on €372 million. EQT's other Danish investments include Bodilsen, a furniture manufacturer that the firm bought in November 2006, and Dako, a cancer diagnostics business acquired in February 2007 for €980 million.
GMT IN BUSINESS DATA ROLL-UP
GMT Communication Partners, a European buyout firm focused on deals in the media and communications sector, has bought a construction information business from Candover and Cinven-backed Springer Science & Business Media. The firm will merge the business with portfolio company Docu Group to create Europe's biggest provider of business information. GMT bought Docu Group, a provider of database information to the construction and property industries, from a private owner in 2004. Founded in 1992, GMT has invested in 25 companies in the European media and communications sector.
TOWERBROOK SELLS INFOPRO TO APAX
London-based TowerBrook Capital Partners has sold French information business InfoPro Communications to Apax Partners. A banking source confirmed that TowerBrook, which originally invested in InfoPro in 2001, has made a return of three times the initial investment from the deal. InfoPro's management team, led by CEO and founder Christophe Czajka, will keep a 44 percent stake in the business. Apax is currently raising an €11 billion ($15 billion) fund. It recently sold its 21 percent stake in Spanish airline Vueling Airlines, triggering rumours that it will use the proceeds to finance a rival bid for Iberia, which is being chased by a TPG-led consortium. The firm is also in the process of selling New Look, the UK fashion chain that it bought with Permira in 2004, and is thought to be seeking bids in the region of £2 billion.
HG CASHES IN ON SOFTWARE BET
The London-based European midmarket firm has sold two software businesses, IRIS Software and Computer Software Group, to US sponsor Hellman & Friedman for an enterprise value of £500 million (€737 million, $984 million). Hg's investors will receive £239 million in profits from the exit, which has generated a 2.9 times return on the original investment, according to a banking source. Hellman & Friedman will merge the two businesses which will become known as Iris Software Group. Hg will keep a minority stake.
BANK OF ENGLAND WARNS
The Bank of England has stoked the debate about leveraged buyouts by warning of a global economic downturn, sparked by a single large defaulting buyout. In its latest Quarterly Review today, the bank said: “The failure of a large leveraged loan that left intermediaries with unexpectedly large commitments could prompt a widespread disruption. In the event of a significant disturbance, there is great uncertainty surrounding how the shock would be transmitted through the financial system,” it added. It also criticised banks for their increasingly easy lending in buyouts deals.
INDEX MAKES MILLIONAIRES OF LAST.FM FOUNDERS
The founders of Index Venturesbacked internet site Last.fm have sold the business to US television network CBS for $280 million (€209 million). The sale has generated a $56 million profit for Index Ventures, which bought a 20 percent stake in the business in 2006, according to media reports. The website's three founders – Martin Stiksel, Felix Miller and Richard Jones – are thought to have made $38 million each from the sale. 32 year-old Austrian Stiksel and 30 year-old German Miller founded Last.fm in 2002, and teamed up with 24 year-old Brit Jones in 2003. Index has backed some of Europe's most high profile venture deals, and participated in the $4.1 billion exit of internet telecoms company Skype to eBay in October 2005. The deal reportedly generated $300 million in profits for the Geneva-based firm.
TRUELL CARVES OUT PENSION POOL
UK buyout firm Terra Firma has sold off-licence chain Threshers to a consortium led by Duke Street Capital founder Eddie Truell. It was reported that the sale price was below the £225 million ($445 million, €331 million) that Terra Firma paid for the business in 2000. However, the firm recouped some of its initial investment with the sale and leaseback of some of the company's property estate for £200 million in April. Two weeks after the Truell consortium bought Threshers, it sold its 75 percent stake in the business to secondaries firm Vision Capital. Truell divested the operating businesses of the two companies whilst keeping the pension fund assets for his new venture the Pension Insurance Corporation. Truell founded this scheme in 2006. In May, he sold most of his 30 percent stake in Duke Street.
FSA HIGHLIGHTS CONFLICTS OF INTEREST
The UK financial regulator the Financial Services Authority has issued a stern piece of research into the buyout industry, flagging up market abuse and conflicts of interest as the greatest risks posed by the industry. “The significant flow of price sensitive information in relation to private equity transactions creates considerable potential for market abuse,” the FSA said. The report found this was especially the case in public to private transactions and said its latest monitoring system introduced this year would be able to address this. The FSA will implement reporting requirements for firms to incorporate information on committed capital in addition to the current requirement to report drawn down capital. On the issue of leverage, the FSA said: “We maintain a risk exists that leverage in individual transactions increases to excessive levels making the financial viability of the underlying firms unsustainable,” the FSA said. This implied the default of a large private equity backed company or cluster of private equity backed companies was inevitable. On a more positive note, the FSA said transparency for existing investors was more extensive than it had thought in a discussion document issued last November.
BOOTS PENSIONERS WIN KKR PLEDGE
US buyout firm Kohlberg Kravis Roberts has accepted a settlement worth £1 billion (€1.5 billion, $1.3 billion) securing the chemist Alliance Boots' pension scheme for the next ten years and paving the way for KKR's £11 billion takeover of the FTSE 100 company. The buyout firm promised £418 million in cash instalments over the next decade and a £600 million security agreement. KKR has also guaranteed the scheme's solvency using an unnamed bank. The trustees wanted additional security because of the £8 billion leverage used for the agreed LBO. Observers consider the settlement significant, because it sets a precedent for pension fund trustees at other buyout targets.