3i exits UK house building group in tertiary buyout

3i has sold its interest in British house builder Morris Homes to the company’s management board in a tertiary buyout, six years after it made its original investment.

The buyout was funded by the Royal Bank of Scotland to the tune of £126.75m – £115m senior acquisition and working capital facilities and a £11.75m mezzanine facility – and also sees the bank take a 14.25% equity stake.

Quayle Munro Holdings (QMH), an investor in the company since the original buyout in 1990, has sold 67.6% of its original stake, which constitutes 10.9% of the total equity invested in Morris.

The chairman, CEO and management shareholders are rolling over their existing shares and shareholder bonds into holdings of shares and loan stocks. QMH is rolling over the balance of 63,806 shares (6.4%) of its existing shareholding and its entire holding of shareholder bonds and thereby increases its stake in Morris.

The structure of the new holding company is as follows: CEO Michael Gaskell owns 37.65% (up from 16%), QMH has 24.88% (up from 17.3%); RBS holds 14.25%; non-executive chairman Bernard Norman has 11.41%, and three Morris directors own a total of 11.8%.

The secondary buyout took place in 1998 when 3i invested £6,855m from its UK Smaller MBO Fund alongside QMH’s £25,569m and investments from Michael Gaskell, Bernard Norman, and board members Martin Edmunds (land director), Kevin Farrington (technical director) and David Pendlebury (commercial director).

The original buyout occurred in 1990 when Ian Conroy, Michael Gaskell and Susan Hatch, all members of the Morris management team, County Natwest Ventures, Yorkshire Bank Investments, East of Scotland Industrial Investments (now QMH), and Clydesdale Bank all took equity stakes.

Morris Group is a housebuilder operating from the north-west of England down to Worcestershire. In the last five years, it has upped its annual profits from £3m to £25m. Morris Homes last year had a turnover in the region of £150m, made a profit of £25m and completed 1,000 homes.