Shares in Candover Investments jumped 12 per cent on Friday morning to 300p after the troubled UK private equity group gained some badly-needed breathing space on Friday with a deal to sell Wood Mackenzie, the UK-based energy research and consultancy group, to rival private equity house Charterhouse Capital Partners for an enterprise value of £553m.
The deal, mooted since Candover announced it was in exclusive talks over the sale of Wood Mackenzie two weeks ago, will bring much needed relief to its owner, reports the FT.
Not only that, as the UK’s largest leveraged buy-out so far this year, the deal will give hope to the moribund private equity industry of reviving interest in the sector, which has seen bank funding dry up in the last 18 months.
For Candover, the sale is crucial, even though it had initially sought about £650m from the deal. The group, which invests in funds managed by Candover Partners, has been desperately seeking a buyer for all or part of itself in an effort to fix a looming liquidity crisis, as it struggles to raise capital and cut costs before a key test of its debt covenants on June 30.
As Bloomberg notes, Candover Investments cancelled a pledge to invest €1bn ($1.4bn) in Candover’s latest fund in February as cash for investments dried up. Last year, it spent three times more buying companies than it earned from asset sales, prompting JPMorgan Cazenove analyst Christopher Brown to question the firm’s survival.
Candover chairman Gerry Grimstone, who famously delivered a grovelling apology to shareholders in May, on Friday hailed the progress of the group’s stabilisation programme and said proceeds from the Wood Mackeknzie sale would bolster its cash reserves.
According to the FT, the deal will generate total proceeds of £36.2m for Candover, with an immediate cash payment of £19.6m, £1.9m via a deferred consideration scheme and a further £16.7m cash payment from the crystallisation of carried interest payments from the Candover 2001 Fund.
Candover had a 2008 year-end valuation of Wood Mackenzie at £20.5m, around 9.2 per cent of its net asset value.
Charterhouse, run by former Bankers Trust financier Gordon Bonnyman, sweetened its offer to see off lower-priced bids from its US buy-out rivals, Bain Capital, Hellman & Friedman and Warburg Pincus. Charterhouse plans to expand Wood Mackenzie by seeking acquisitions in other industries.
The deal will result in a payout of more than £100m to the 100 employee shareholders at Wood Mackenzie, who together own a quarter of the Edinburgh-based company’s equity, the FT notes. However, most are expected to reinvest at least half their post-tax proceeds back into the company.
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