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Is Thomas Cook about to collapse?

A leading analyst has cast doubt over whether Thomas Cook’s £750m rescue plan, announced at the end of last week, will work.

Citigroup’s James Ainley suggested the package, which would put Chinese conglomerate Fosun in control of the 178-year-old tour operator, could be blocked by its bondholders.

So how has it come to this and should holidaymakers be concerned?

What has happened to Thomas Cook?

The travel company, which employs 21,000 staff around the world and operates more than 560 stores in the UK, has “suffered as customers shifted from the high street to the internet, threatening its ability to service a £1.6bn debt pile”, says the Financial Times. It came close to collapse eight years ago and took on large loans to survive.

 

“Tough trading conditions have been exacerbated by Brexit uncertainty,” adds the FT.

Last Friday, the embattled company confirmed that it was in “advanced discussions” to secure new funding from its banks and Fosun, which owns the holiday resort chain Club Med. The £750m deal would hand control of its package holiday business to the Shanghai-based investor in return for a cash injection. Meanwhile, banks and bondholders would take a majority stake in its airline and a minority stake in the holiday unit.

The extra cash “is designed to see the company through the winter, when holiday bookings are at their lowest, affording it time to cut costs and raise money by selling its airline division”, explains The Guardian.

Will the deal go ahead?

Citigroup analyst James Ainley, described by The Daily Telegraph as “one of Thomas Cook’s most vocal critics”, has calculated that shares would be worth just 3p if the plan goes ahead.

“The uncertainties are significant and the risk of the process stalling seems high,” said Ainley, who sent shares in the company plunging in May by downgrading its stock to zero pence.

For the package to work, Thomas Cook needs a “strong turnaround plan, about which little detail has yet been given”, he added.

A spokesman for Thomas Cook said: “The board is clear in its view that it is in the best interests of all the group’s stakeholders, including bondholders, to pursue a full re-capitalisation supported by new investment into the business. It is a pragmatic and responsible solution which provides the means to secure the future of Thomas Cook.”

Should holidaymakers be worried?

On Friday, Peter Fankhauser, Thomas Cook’s chief executive, said there would be “no impact from today’s announcement on our holidays or our flights”.

Meanwhile, holidays booked through Thomas Cook are Atol-protected, meaning any customer would be entitled to a full refund or replacement holiday should the tour operator collapse before their scheduled departure time.

The Civil Aviation Authority would also protect package holidays and cover arrangements to return customers if the operator collapsed while they were on holiday.

However, some holidaymakers could be caught out if they have booked on Thomas Cook’s airline, which is separate from the tour operator, and sells flight-only trips, some of which are not Atol-protected.

 

Read More – www.theweek.co.uk

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Cathedral City maker Dairy Crest to be bought by Saputo

Dairy Crest, whose brands include Cathedral City cheddar and Country Life butter, has agreed to be bought by a Canadian company in a near-£1bn deal.

Saputo, one of the biggest dairy processors in the world, will pay 620p a share, valuing Dairy Crest at £975m.

The deal is Saputo’s first in Europe and it said Dairy Crest was an “attractive platform” for UK growth.

Dairy Crest said “virtually” all its 1,100 UK jobs are safe, including 150 at its head office in Surrey.

However, the Unite union said it would be “seeking an urgent meeting” with Saputo about assurances over job security.

Dairy Crest’s share price, which has risen steadily this week, had jumped almost 12% in late morning trading on Friday.

Read More – www.bbc.co.uk

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The Pac-12 wants a $500M investment from private equity

Private equity has long made its living turning around distressed companies.

Could the industry revive a struggling college sports league?

The Pac-12 Conference is seeking a $500 million investment from a private equity partner for a 10% stake in the league’s TV network and other commercial assets, according to The Oregonian. A possible deal could reportedly value the new business at between $5 billion and $8.5 billion, per the conference’s plans. It would also include broadcast and sponsorship rights, merchandising, and distribution agreements.

It’s unclear if any formal discussions between the Pac-12 and potential investors have begun.

Embattled Pac-12 commissioner Larry Scott presented the plan to Pac-12 leadership last November, per the report, and if a deal is struck, it could provide the conference’s 12 schools with nearly $42 million apiece. The money is much-needed. The Pac-12 Network has struggled to generate revenue comparable to other Power Five conferences such as the SEC and the Big Ten, the latter of which is set to distribute $15 million-plus more annually to its schools than the Pac-12 currently does to its member institutions.

Why would a PE firm be interested in such a deal?

In 2011, the Pac-12 signed a 12-year television contract with ESPN and Fox worth some $3 billion. The deal expires in 2024 and the upcoming contract could provide a nice cash infusion within a typical five-to-seven-year investment timeline. And an investor wouldn’t have to do much in the meantime other than front the money, since a proposed deal from the Pac-12 would see the conference retain operational control.

But any firm would be attaching itself to a league that’s been criticized for spending too much on its conference headquarters in downtown San Francisco, overseen a raft of high-profile officiating errors in football, and failed to produce a team that reached the College Football Playoff in three of the past four years, plus other controversies. The Pac-12 has responded by hiring FleishmanHillard, a PR agency that specializes in crisis management, again per The Oregonian.

When the conference created its own network following the deal with ESPN and Fox, it touted that the Pac-12 Network was independently owned and thus would get 100% of the proceeds. But that arrangement so far hasn’t been very lucrative. The conference has failed to strike a deal with DirecTV because of a disagreement over media rights, costing the Pac-12 millions and hurting its national exposure. Meanwhile, Scott himself has drawn criticism for his $4.8 million salary, per a USA Today report, which was more than double his Big Ten and SEC peers in 2016.

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Saudi wealth fund weighing $1B investment in Tesla rival

After an especially tumultuous couple of weeks for Tesla, Elon Musk’s potential buyout partner is apparently looking to obtain a majority stake in another electric car company.

The Public Investment Fund of Saudi Arabia is considering an investment in Lucid Motors, a Newark, CA-based electric car maker, that could total more than $1 billion and give the fund ownership of the company, according to Reuters.

Under the terms of the agreement, the Saudi Arabian sovereign wealth fund, which manages some $250 billion, would reportedly provide an initial investment of $500 million, then make two subsequent investments if Lucid hits certain production targets.

Founded in 2007 by former Oracle executive Sam Weng and former Tesla vice president Bernard Tse, Lucid is backed by VCs including Venrock and Tsing Capital. Unlike Tesla, the company has yet to release any cars on the open markets. But last year, Lucid unveiled a prototype sedan, Lucid Air, which has 400 horsepower and a starting price of $60,000. The car is expected to ship sometime in 2019.

The potential Saudi Arabia PIF-Lucid partnership could be problematic for Musk, who already appears stressed. Last week, the billionaire entrepreneur gave an interview with The New York Times in which he alternated between laughing and crying while detailing the pressures of running Tesla.

The latest controversy came when Musk himself tweeted earlier this month that he planned to take the business private for $420 per share, or about $72 billion, noting that funding was secured.

Musk later clarified in a blog post that the Saudi Arabia wealth fund, which owns a 5% stake in Tesla, was the potential backer, though no formal agreement had been made. The company is now reportedly facing a subpoena from the SEC and lawsuits from investors that allege Musk’s tweet aimed to inflate the company’s stock price. Tesla stock initially dipped Monday before closing the afternoon up just about 1% at $308.44 per share.

 

Read Full Article – www.pitchbooks.com

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Esure Founder to Make £360Million

Esure founder Sir Peter Wood will make more than £360m from selling the insurance group to private equity firm Bain Capital in a £1.2bn deal.

Shares in the company, which owns Sheilas’ Wheels and GoCompare, shot up more than 30 per cent on Monday after the firm revealed it was in talks with US-based Bain.

The unsolicited bid of 280p per share represents a premium of 37 per cent on the share price before the offer was made. However, it is below the float price of 290p when it launched on the London Stock Exchange in 2013.

If the deal completes, esure will become a private company and its shares will no longer be traded on the stock market.

Sir Peter, who holds approximately 30.69 per cent of esure’s stock, will receive around £368m, but has also pledged to reinvest £50m in the business.

He will also continue as chairman of the firm – Bain said that due to his “extensive experience in the insurance sector and track record of driving growth and profitability at esure”, Sir Peter’s ongoing participation was “an important element of the offer”.

Sir Peter, who pocketed £198m when esure first floated three years ago, said the deal was “a great outcome for shareholders, for the company, and for customers”.

“As a private company and with Bain Capital’s backing, esure will be able to invest behind the innovation required to fully realise the opportunities in this market,” he added.

Robin Marshall, managing director and co-head of Bain Capital Europe, said: “Sir Peter Wood is a towering figure in the industry and we would be delighted to be able to take the company that he and his team have built to the next level. We are excited that he will remain a minority shareholder in the company and also grateful that he will remain as Chairman to facilitate a smooth transition to private ownership.”

Read Full Article – www.independant.co.uk

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$3.9B Move In The Public Markets

At the start of this month, KKR officially converted from a partnership to a corporation. It was the culmination of a gradual, decades-long shift that’s seen the firm become more and more interested in the public markets, in contrast to its traditionally private-markets-focused PE peers.

KKR’s penchant for exiting investments via IPO is one indication of this philosophy. And its half-decade as a backer of Gardner Denver—a period that began five years ago today, on July 30, 2013—is a prime example.

In this particular saga, the firm’s connection with the stock market began with a search for targets. Gardner Denver, an industrial manufacturer focused on flow-control products for an array of industries, had been publicly traded on the NYSE for 70 years when KKR purchased all its outstanding shares in a take-private buyout valued at $3.9 billion, including the assumption of debt. KKR brought in new management as part of the deal, hiring industry veteran Timothy Sullivan as CEO and president, and appointing Michael Larsen as CFO.

The next four years brought conflicting financial signals for Gardner Denver, with a decline in energy prices wreaking havoc across the industry. The company managed to grow its EBITDA margins steadily under KKR ownership, but revenue declined by some 27% between 2014 and 2016. And something had soon become clear: The debt that KKR had piled onto the company’s existing load in order to execute its buyout was proving problematic. A return to the public markets beckoned.

The company still listed nearly $2.8 billion in total obligations as of March 31, 2017, per an SEC filing. Among a list of other risks, Gardner Denver claimed that it “may not be able to generate sufficient cash to service our indebtedness.”

That may have played a role in the lukewarm response to the company’s roadshow. After initially seeking a price of between $23 and $26 per share for its offering of 41.3 million shares, Gardner Denver ultimately priced its listing at $20 per share for its May 2017 IPO, raising $826 million at an estimated $3.8 billion valuation. The difference between an original midpoint estimate of $24.50 per share and the ultimate $20 per share pricing amounted to some $186 million—a healthy discount from what the company’s investors had hoped for.

In reality, we should maybe use the singular “investor”: KKR owned a 98.6% pre-IPO stake in Gardner Denver and retained a 75% holding upon the offering’s completion.

The company’s stock price hovered in the low $20s for the next several months. By last autumn, however, it began to tick up—first past $25 per share, then past $30. For KKR, that meant it was time to pull out some profits.

Last November 13, the firm announced plans to offer 22 million shares of Gardner Denver; the company closed trading that day with a market cap of about $5.8 billion. KKR announced a secondary offering of another 26.6 million shares for $31 apiece in May, a sale that was set to generate some $823 million in cash. Combined, those nearly 49 million shares that KKR sold in a six-month span represent about a quarter of Gardner Denver’s outstanding stock.

In terms of the traditional buyout cycle of acquisition to exit, KKR’s deal with Gardner Denver may not have generated the sky-high profits to which the PE industry is accustomed. But by holding onto post-IPO shares and playing the stock market, the firm showed the benefits of its emphasis on both the public and private sides of the economy.

This day in buyout history: Full article

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Aussie Start Up Hits Local Bank With $40 Million From US

When Brad Couper, the chief executive of Brisbane-based software-as-a-service company simPRO, was toasting a $40 million capital raising from New York venture capital firm Level Equity earlier this month, he couldn’t help but shake his head at the lack of support from his local bank.

After one of the year’s largest startup funding rounds, the maker of cloud-based software tools for tradies is valued at north of $100 million, but back in February the local bank it has used for 14 years had refused its application for a $2 million business expansion loan.

“We’d rather not give away equity if we don’t have to, and a $2 million loan would have been enough to continue our growth,”  Mr Couper said.

simPRO had been a customer of the same “big four” bank – which he declined to name – since 2002, when electrical contractor Stephen Bradshaw founded the business in his Brisbane garage.

ts estimating and scheduling platform for tradespeople turned over $20 million in 2015/16 and claims nearly 100,000 users worldwide.

 Mr Couper said that, despite the entrepreneur-friendly rhetoric all the banks have dialled up since the government’s 2015 “ideas boom”, they had no framework for valuing his business or assessing its likely speed of growth.

Nervous banks

He said the bank was nervous about simPRO’s intention to use the loan to expand its Boulder and London offices, and did not understand its software-as-a-service (SaaS) model.

“We even sat down with them and explained how SaaS works, that our recurring revenue could service a $2 million loan, and that in fact if I didn’t increase spending for just one month we’d be below their serviceability threshold forever,” Mr Couper said.

“They just said ‘yeah, looks good, but no’. The only way we were going to get the $2 million was if every one of our 12 shareholders signed a personal guarantee and put their house on the line. It’s not that the banks wouldn’t like to back us but their systems just don’t allow it.”

Mr Couper’s next stop was Australian venture capitalists, where he was also out of luck.

While he said local VCs could value SaaS companies, they could not a write a cheque of the size required by simPRO after 14 years of bootstrapping.

“And the handful that are big enough just want to value you at two or three times last year’s earnings, and that doesn’t fly in a fast growth SaaS company.”

Finding VC support

It was only when simPRO talked to US venture capitalists, as part of a delegation organised by KPMG/Advance program Elevate61, that it found the necessary support for its SaaS “scale-up” plans.

Mr Couper and three other simPRO executives paid $4000 each plus expenses to join Elevate61, but he said the investment was worth it because it taught them precisely where to look for funding.

“It’s a generalisation but we found the east coast VCs understood established SaaS businesses like ours, and were prepared to pay a multiple of forward earnings for them, anywhere from three to eight times,” he said.

“The west coast VCs are all coming out of technology successes and are more interested in taking a punt on the shiny new thing.”

SimPRO banked a $40 million investment from New York’s Level Equity earlier this month, struck at a “comfortably nine-figure valuation”, Mr Couper said.

The chief executive just signed off on hiring 41 more people, which will take simPRO’s total head count to 210. Thirty of those will be for product development in Brisbane, with the balance additional support staff in the Boulder and London offices.