LISTED PE: In Better shape

It’s a drizzly day in April, and Private Equity International is in Corby, a land-locked town in the East Midlands region of the UK, to see British luxury yacht manufacturer Fairline unveil its new high-tech production line. Despite the economic gloom, Fairline is bouncing back from the torrid time it had post-crisis – thanks to a well-executed turnaround strategy overseen by a listed private equity manager that trades at a premium to net asset value.   

Apart from the weather, it’s hard to know which bit of this scenario is the most implausible.

Better Capital, which bought Fairline in July 2011, is the latest venture of industry veteran Jon Moulton. It manages two London-listed funds, which invest in distressed or underperforming businesses in the UK and Ireland – just like Fairline.

“If you look at the sector, there’s a lot of consolidation going on,” says Nick Sanders, managing partner and head of portfolio at Better, explaining the rationale behind the deal. “So we felt that if you could get a good turnaround going, when the time came, you’d probably find there were a number of people interested in buying it.” 

Since getting its hands on the tiller, Better has overseen a number of new boat launches and extended the company’s sales efforts into new markets like China and Egypt. The gleaming new manufacturing facility on display today – a mightily impressive sight, at least to this untrained eye – is the icing on the cake.  So it looks like the investment is nicely on track. “We’re happy with it,” agrees Sanders. “It’s a really good example of what Better does.”

What Better does is something that has been attracting a lot of attention in the last year or so, not least from its peers in the listed private equity sector. After all, since its launch in 2009, Better has consistently traded at a premium to NAV – at a time when many listed groups have been struggling with discounts in excess of 20 or even 30 percent. So what’s Better got that they haven’t? 

The cynics argue that it’s largely a reflection of how thin the trading is in Better shares. But according to the ever-forthright Moulton, Better is outperforming the market for three key reasons. “We are distributing, rather than reinvesting proceeds as a permanent capital vehicle would do. We have no fees based on net assets. And we are a market leader in a very popular area [which is turnaround investing].” 

It’s certainly true that Better’s strategy is a timely one – and that’s not something other listed groups could easily replicate. But is there more they could be doing on the other two points?