Buffin warns of deal shrinkage

Colin Buffin, head of London-listed buyout firm Candover, has warned of a downturn in the number of large deals the fund has traditionally done as it posts proceeds of £443.8m in the year to 30 June 2007.

“Realisations will be much more difficult to achieve now that the debt market has dried up and prices may come down” says Buffin. As a result, greater emphasis will be placed on exiting on the public markets, while trade buyers will provide greater competition in M&A deals.

Candover’s share of the £443.8m of proceeds was £51.6m. A further £519m of proceeds have been agreed since the period end, of which Candover’s share is £78.7m. This comprises the partial realisations from Vetco Gray and Wellstream.

In January of this year, Candover, 3i and JP Morgan Partners sold the Vetco Gray oil and gas services division of Vetco International to General Electric for €1.5bn. The sale generated a 3.5 times money multiple on the consortium’s €729m acquisition from Swiss engineering group ABB in January 2004. The consortium then sold the remaining part of its Vetco investment, Aibel, to Norway’s Ferd Private Equity for €670m in late June, generating an overall cash return for Vetco International of 4.1 times.

In April, Candover sold approximately 76% of its shareholding in pipe manufacturer Wellstream, which floated on the London Stock Exchange, providing a four times cash multiple on the €123m purchase of the former Halliburton unit in 2003. Candover said its residual holding is valued at £57.2m.

Full realisations achieved or announced in the period were Aibel; Dakota Minnesota & Eastern Railroad Corporation, a 21-year investment; electronic publisher Bureau van Dijk, sold in June to BC Partners for €720m, a 2.5 times multiple on the €370m purchase in 2004, following a refinancing last year; and Thule, a Swedish equipment transport company sold to Nordic Capital in May for a reported €1.3bn, also generating a more than 2.5 times multiple.

The sales of Thule and Bureau van Dijk, due to complete later this year, will generate proceeds of £293.7m and £152.8m respectively.

The May refinancing of Innovia Films, a Belgian pharmaceutical packaging and labels business, bought for €320m in September 2004, returned almost all of the original investment. The May refinancing of Norwegian cable business Get, a €445m transaction in December 2005, has returned approximately half of the original investment.

Investments in the period included Ferretti, an Italian luxury yachts business; amusement park Parques Reunidos; and Capital Safety Group, a US$565m secondary buyout from Electra Private Equity.

Candover’s net assets per share increased by 34.7% over the year, and up 23% in the last six months, to 1848p on 30th June 2007, compared to the FTSE All-Share Index, which rose by 14.7% and 5.7% over the corresponding time periods. In addition the firm reported interim profits before tax of £10.6m, up from £10.1m last year, and an interim dividend increase of 11.1% to 20p.

Gerry Grimstone, chairman of Candover Investments, focused on the firm’s positive results but echoed Buffin’s concerns for the future: “Candover’s impressive net asset increase during 2007 to date has been driven in part by a number of significant realisations from the maturing 2001 Fund portfolio. Looking forward, however, it is unlikely that the pace of realisations will continue in the short to medium term, as the currently volatility in the banking markets makes transactions more difficult to accomplish. But provided we can find suitable opportunities, this could be a good period for investing if lower pricing benefits can be achieved.”