The Global Economic Impact of Private Equity Report 2008 - World ...

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The new distribution centre impacted on employment, asmany of the Weymouth employees would not relocate. Themanagement team worked hard to mitigate the negativeoutcome of this investment. The announcement of the newdistribution centre was made public in July 2004, with theclosure of the Weymouth distribution centre scheduledfor November 2005. The company undertook a majorcommunications programme to ensure all employees fullyunderstood the business rationale for the move and werekept up to date with all activities. New Look put a retentionbonus scheme in place to encourage employees to remainwith the company through to closure, and a full programmeof retraining was made available to assist employees inre‐deployment. With this scheme, New Look was able toreduce its staff turnover rate from 28.9% to 16.2%. The newdistribution centre opened in September 2005, with its fullcomplement of 530 employees; the Weymouth distributioncentre closed two months later. Approximately 15 employeeswere brought into vacant positions in the head office, and 20employees relocated and joined the new logistics contractorat the new site. The remaining 545 staff, mostly warehouseoperatives and drivers, left New Look. The distribution centrecommenced operations under the management of DTSLogistics, part of Clipper Group, in September 2005. InDecember 2006, New Look took over full managementcontrol of the warehouse operations; all staff employed byClipper transferred to New Look and were employed underthe same conditions.RefinancingWhile New Look was not under financial pressurepost‐transaction, Apax Partners/Permira’s suggestions toimprove New Look’s capital structure were a keycontribution. “We very much benefited from their expertisein raising finance,” an insider noted. In January 2005, arefinancing package was undertaken. While not a “properrefinancing”, there was a surplus of funds for severalreasons, including cost reductions, an increase in creditordays, and an EBITDA growth enabling a payout of £100million in May 2005 to the equity holders. By July 2005,an additional £240 million was returned on the basis ofadditional substantial EBITDA and profit growth, andexcess cash.New Look found that with the private equity investors onboard, and consequently closer monitoring of the company,debt providers were willing to increase the company’sleverage even though the firm’s transformation processrepresented greater risks. Through a debt restructuring in2006 (which rolled interest up in capital value as opposedto a cash payout) the partners were able to take advantageof the uptick in the payment‐in‐kind (PiK) market. Sharestructures adjusted slightly, as management holdingsincreased to 15.7% (see Exhibit 6 for details on leverage overtime, and Exhibit 7 for shareholder data over time). In thecourse of negotiations with debt providers, managementreceived the offer to further increase New Look’s leverage.Apax Partners/Permira advised the management to turndown the offer, suggesting New Look steer clear of anaggressive financing strategy, and potentially puttingpressure on cash. As Miller recalled, “They prevented usfrom getting overleveraged and encouraged us to stayunder a certain leverage ratio.”The management, Singh and Apax Partners/Permiraall agreed that the refinancings had no impact on themanagement side of the company, nor did they restrict thecompany’s growth or investments. “Our financial health wasnever threatened,” Wrigley noted: “We could always sleepwell at night.” Apax Partners/Permira had not initiallyexpected to be able to refinance the business, but theopportunity arose, and they were able to take advantageof it and got back two times their invested capital.New Look 2007: Looking for an Exit?In early 2007, Apax Partners/Permira and New Look’smanagement considered possible exit strategies. Theaverage time horizon for a private equity investment wascoming close and New Look offered the additional growthpotential necessary to attract a secondary buyout. Eventhough the expansion within the UK was relatively advanced,there were still many opportunities to extendinternationalization across Europe and the Middle East.The poor reception for other fashion retail public offerings inearly 2007, including Debenhams and Sports Direct,influenced the team to decide against a public listing. Themanagement team and Apax Partners/Permira felt thatpublic markets might not differentiate between New Look,still in the middle of an expansion phase, and other listedfashion retailers at various lifecycle stages (e.g. undergoingrestructuring). With part of the transformation process stillahead, New Look had further infrastructure investmentsplanned that would once again put pressure on short‐termperformance. Therefore, all agreed it was not the right timeto pursue a public offering.Instead, the team pursued an exit via a secondary buyout. Thepotential of a secondary buyout lay in the continuation of NewLook’s current growth strategy – further expanding in Europeand internationally, and continuing to change over from smallto large stores. A sale process was run, but this did not resultin a successful outcome as credit market turmoil andconcerns regarding general consumer spending growth in theUK emerged. Following the process, Apax Partners/Permiramade a firm decision against any exit of New Look in the nearfuture, opting instead to keep the retailer in their fold andfocussing on continued company growth.With exit discussions precluded, one of the private equitypartners looked back on the deal: “This case is all aboutcompany growth. Private equity was enlisted to help growa company. Once New Look was private, we were able tomake long‐term investment decisions. If New Look werestill public, I don’t believe they would have been able tofollow the same growth path they’ve achieved today.”108 Case studies: New LookThe Global Economic Impact of Private Equity Report 2008
Although a public listing did not appear viable in 2007,New Look’s management team considered it a potentialoption in the near future, believing that when New Lookhad built a successful and sustainable businessinternationally, public investors would have the confidenceto back the company again. In addition, the broaderstrategic positioning of New Look could help to reducecyclicality, enabling the company to manage the pressuresof public markets again. In 2007, however, the privateequity investors, the management team and Singh allbelieved a public listing only made sense at a later stagein New Look’s transformation process.Exhibit 1: New Look daily closing share priceDaily closing share price (in p)4003503002502001501005018/6/9818/10/9818/2/9918/6/9918/10/9918/2/0018/6/0018/10/0018/2/0118/6/0118/10/0118/2/0218/6/0218/10/0218/2/0318/6/0318/10/0318/2/04Source: Thomson Financial’s Datastream, accessed 5 December 2007.Exhibit 2: New Look daily closing share price vs FTSE all sharesDaily closing share price (in p) indexed250200New Look150100FTSE50018/6/9818/10/9818/2/9918/6/9918/10/9918/2/0018/6/0018/10/0018/2/0118/6/0118/10/0118/2/0218/6/0218/10/0218/2/0318/6/0318/10/0318/2/04Source: Thomson Financial’s Datastream, accessed 5 December 2007.The Global Economic Impact of Private Equity Report 2008 Case studies: New Look 109
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The Globalization of Alternative In
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ContributorsCo-editorsAnuradha Guru
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PrefaceKevin SteinbergChief Operati
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Letter on behalf of the Advisory Bo
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Executive summaryJosh lernerHarvard
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• Private equity-backed companies
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C. Indian casesThe two India cases,
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Part 1Large-sample studiesThe Globa
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The new demography of private equit
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among US publicly traded firms, it
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should be fairly complete. While th
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according to Moody’s (Hamilton et
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draining public markets of firms. I
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FIguresFigure 1A: LBO transactions
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TablesTable 1: Capital IQ 1980s cov
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Table 2: Magnitude and growth of LB
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Table 4: Exits of individual LBO tr
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Table 6: Determinants of exit succe
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Table 7: Ultimate staying power of
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Appendix 1: Imputed enterprise valu
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Private equity and long-run investm
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alternative names associated with t
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4. Finally, we explore whether firm
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When we estimate these regressions,
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cutting back on the number of filin
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Table 1: Summary statisticsPanel D:
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Table 4: Relative citation intensit
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figuresFigure 1: Number of private
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Private equity and employment*steve
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Especially when taken together, our
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centred on the transaction year ide
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and Vartia 1985.) Aggregate employm
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sectors. In Retail Trade, the cumul
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employment-weighted acquisition rat
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FIguresFigure 1: Matches of private
Page 75 and 76: Figure 6:Figure 6A: Comparison of n
Page 77 and 78: Figure 8:Figure 8A: Comparison of j
Page 79 and 80: Figure 11: Variation in impact in e
Page 81 and 82: Figure 12: Differences in impact on
Page 83 and 84: Private equity and corporate govern
Page 85 and 86: et al (2007) track the evolution of
Page 87 and 88: groups aim to improve firm performa
Page 89 and 90: distribution of the LBO sponsors, m
Page 91 and 92: the most difficult cases. This stor
Page 93 and 94: to see whether these changes of CEO
Page 95 and 96: Figure 3:This figure represents the
Page 97 and 98: TablesTable 1: Company size descrip
Page 99 and 100: Table 5: Changes in the board size,
Page 101 and 102: Table 7: Board turnoverPanel A: Siz
Page 103 and 104: Part 2Case studiesThe Global Econom
Page 105 and 106: European private equity cases: intr
Page 107 and 108: Exhibit 1: Private equity fund size
Page 109 and 110: Messer Griesheimann-kristin achleit
Page 111 and 112: ealized it was not possible to grow
Page 113 and 114: The deal with Allianz Capital partn
Page 115 and 116: the deal, the private equity invest
Page 117 and 118: Exhibit 1: The Messer Griesheim dea
Page 119 and 120: Exhibit 5: Post buyout structureMes
Page 121 and 122: New Lookann-kristin achleitnerTechn
Page 123 and 124: feet. This restricted store space w
Page 125: institutional investors why this in
Page 129 and 130: Exhibit 5: Employment development a
Page 131 and 132: Chinese private equity cases: intro
Page 133 and 134: Hony Capital and China Glass Holdin
Page 135 and 136: Hony’s Chinese name means ambitio
Page 137 and 138: Establishing early agreement on pos
Page 139 and 140: Executing the IPOEach of the initia
Page 141 and 142: Exhibit 1A: Summary of Hony Capital
Page 143 and 144: Exhibit 4: Members of the China Gla
Page 145 and 146: Exhibit 6A: China Glass post‐acqu
Page 147 and 148: Exhibit 8: China Glass stock price
Page 149 and 150: 3i Group plc and Little Sheep*Lily
Page 151 and 152: y an aggressive franchise strategy,
Page 153 and 154: soul” of the business. But there
Page 155 and 156: Exhibit 1: Summary information on 3
Page 157 and 158: Exhibit 6: An excerpt from the 180-
Page 159 and 160: Indian private equity cases: introd
Page 161 and 162: ICICI Venture and Subhiksha *Lily F
Page 163 and 164: investment,” recalled Deshpande.
Page 165 and 166: 2005 - 2007: Moderator, protector a
Page 167 and 168: Exhibit 3: Subhiksha’s board comp
Page 169 and 170: Warburg Pincus and Bharti Tele‐Ve
Page 171 and 172: founded two companies at this time
Page 173 and 174: By 2003 this restructuring task was
Page 175 and 176: Exhibit 1C: Private equity investme
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Exhibit 4B: Bharti cellular footpri
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Exhibit 6: Summary of Bharti’s fi
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Exhibit 7: Bharti’s board structu
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In the 1993‐94 academic year, he
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consumer products. She was also a R
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AcknowledgementsJosh LernerHarvard
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The World Economic Forum is an inde
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