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A careful exit for Sovereign

It has been a busy few months for Sovereign Capital. Following an active year-end with a name change and the launch of its third fund see (EVCJ December/January, fund news), Sovereign Capital, formerly Nash, Sells & Partners has sold its remaining interest in Care UK, the provider of health and social care services.

Sovereign Capital has generated a return of almost 15 times its original investment in Care UK. Sovereign Capital Limited Partnership I invested GBP3.9 million in Care UK between 1992 and 1994. Total proceeds from the investment are GBP57.2 million, representing an IRR of 46 per cent per annum over eight years and a multiple of 14.7 times.

Sovereign’s principals remain substantial shareholders in the company. Executive management holds equity and options currently worth around GBP4 million.

The business was conceived in 1991, when Anglia Secure Homes, then the second largest sheltered housing developer in the UK, came under substantial pressure from its banks. Sovereign Capital agreed with Anglia an innovative proposal to fund a ring-fenced joint-venture. Anglia would contribute its two nursing homes with its existing management, and Sovereign would supply capital to fund the further roll-out of the business. Sovereign invested an initial GBP2.0 million for an 80 per cent interest.

As part of its investment in what was to become Care UK, Sovereign maintained a close working relationship with management through board seats for two of Sovereign’s directors and through continual contact on development issues. This proximity to the business allowed Sovereign to catalyse several key development steps for the business.

The original joint venture was reversed into Anglia in early 1994 and renamed Care UK, enabling the business to gain access to the equity capital markets at quite an early stage in its development. Upon completion, Sovereign Capital held over 60 per cent in the company. Sovereign then rolled CHS into Care UK, thereby generating critical mass and economies of scale supported by a competent management team. CHS was a separate company in Sovereign’s investment portfolio.

The sale of non-core assets generated proceeds of around GBP13 million that were used to fund the rapid organic growth of the core business without further recourse to its shareholders. Care UK is now a market leader in the provision of care under contract to Health authorities. It has over GBP200 million of future contracted income across 30 different facilities across the country.

Richard Clough, chief executive Care UK, said: “Sovereign Capital has provided a valuable input into Care UK’s strategic decisions.” John Nash, partner at Sovereign Capital, stated that with Care UK they discovered a niche and it remains part of Sovereign’s strategy to look for sectors that are going to create strong market opportunity.

Sovereign has also recently recruited Andrew Hayden as partner. He joins the company from Mercury Private Equity.