THE ANNUAL REVIEW 2010 - PEI Media

page 28 private equity annual review 2010
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g f c c a s u a lt y n o . 2
Closure for Candover
After a distressing two years of searching for options, London-listed Candover opted
to spin off and wind down
In what was set to become one of
the highest-profile spin-outs of 2010,
Candover Investments revealed in
early December that it would sell off
its private equity management firm
– Candover Partners – to the firm’s
management in a secondaries transaction
backed by Pantheon.
Since 2008, Candover had battled
against falling portfolio valuations, the
loss of one of its largest investments
in yacht-maker Ferretti and vast overcommitments
by the listed parent
company, Candover Investments, to Grimstone: bowing out
funds run by Candover Partners.
Funding problems at the highly geared parent company meant
it could no longer honour a €1 billion commitment to Candover’s
2008 fund. This ultimately led to the fund being disbanded and
the vast majority of the €3 billion already raised being cancelled
in late 2009.
From this point on, the company grappled with the problem
of how to move the company forward. It held talks with potential
suitors, the most promising being with Canadian pension investor
Alberta Investment Management Corporation (AIMCo). These
talks, however, broke down in July. When Candover released its
half-yearly report in September it said it would become a realisation
vehicle and focus all its efforts on returning cash to investors.
As part of the deal unveiled in December, fund of funds and
secondaries investor Pantheon teamed up with the Candover
Partners management team – who reformed under the name
Arle Capital Partners – to buy the management company for a
nominal fee.
Pantheon and Arle would also acquire a “strip” of assets from the
listed parent company for £60 million (€71 million; $94 million),
Candover said in a statement. The “strip” comprised stakes in the
13 existing portfolio companies under Candover’s management,
or nearly a third (29.1 percent) of the listed parent’s investment
portfolio. The price represented a discount of around 14.3 percent
to the £70 million carrying value of the assets.
The spin-out of Arle ensured “Candover’s portfolio continues
to be managed by an experienced team who are focused on
maximising returns”, the firm said in a statement.
Ensuring the management team
is sufficiently incentivised was
“central to the discussions,” said Elly
Livingstone, who heads up Pantheon’s
secondaries activity. The management
of Arle put up £4 million of the £60
million price tag with the remainder
accounted for by Pantheon. The
management team, said Livingstone,
would have “skin in the game”.
The Arle team is now in a position
to work towards the goal of raising
another fund, although this is not part
of current plans, said a spokesperson
for the new firm.
Livingstone described the deal as “a very significant transaction”
for Pantheon, which in October closed its fourth global secondaries
fund on $3 billion after almost two years of fundraising. The firm
has funded a number of spin-outs from banks and corporates and
is understood to be behind the establishment of Goldman Sachs
spin-off, New Mainstream Capital, which was also revealed in
December.
For the listed parent company, Candover Investments, the sale
meant a stronger balance sheet with a smaller net debt level and
reduced outstanding commitments to Candover funds to the tune
of up to £11.2 million.
The deal also saw the departure of Gerry Grimstone, who has
been chairman of Candover Investments for four years.
“Given these important changes,” said Grimstone in a statement,
“I have decided that after 11 years on the Candover board, four
as Chairman, the time is right for me to announce my intention
to step down.”
“A tightly focused Candover,” Grimstone added, “with a resolved
operating model, is the best platform from which to deliver to
shareholders the significant value in the underlying investments.”
Iain Scouller, an analyst with Oriel Securities described the deal
as a good development for both the listed trust and the management
team. “Whilst it is always disappointing to see investments being
sold at below the previous valuation, we think that the sale is
helpful in further strengthening the balance sheet with net debt
falling to £16 million on a pro-forma basis, compared with £59
million [in June].” ■