Candover fuels confidence on future

London-headquartered buyout firm Candover has put a more positive spin on its recent woes, following the sale of UK energy consultancy Wood Mackenzie in a £553m secondary buyout to fellow London-based financial sponsor Charterhouse Capital.

Candover has now terminated offer talks and is confident of having met key tests of its bond covenants at the end of June, backing up the suggestion from a source close to the company that “some pressure has definitely been taken off”.

The source, who noted that Candover had been approached by interested parties rather than putting itself up for sale, added that an equity raising was still a potential option in the near term, along with asset disposals.

The latter might involve Ontex, a Belgium-based nappy and feminine hygiene products manufacturer, which is said to have received trade buyer approaches, with pricing at more than £800m. Candover declined to comment on Ontex, although sources suggest the company receives numerous approaches for portfolio companies and any ongoing discussions are at a very early stage.

Chief executive Michael Teacher told Reuters that the mooted pricing of €950m was “lousy” and suggestions that the group was under pressure to sell Ontex were “not fair”.

Candover took Ontex private from the Belgian Stock Exchange in a €1bn buyout and delisting in January 2003. Candover Investments, the listed parent of buyout management company Candover Partners, said in its most recent accounts that Ontex had sales of €995.1m and earnings of €99.5m.

Ontex has a dubious distinction among private equity assets as being one of the few businesses to be publicly written down in value during the industry’s boom period. In November 2004, Candover said that it had written down the value of its €400m investment to €100m and that the Belgian business was in danger of breaching certain banking covenants.

Despite this, Candover was able to post results for the year ended December 31 2004 showing a 22.7% rise in total net assets and a 6.1% increase in profit before tax, largely bolstered by the realisations of Baxi, Bourne Leisure, Centaur, Clondalkin, Earls Court & Olympia and Picard Surgelés for an overall multiple of three times original money.

In March 2007, Candover entered talks with banks regarding covenant defaults, although sources at the time said that the situation was not one of overleveraging but rather the business being squeezed on price due to brand competitors entering the market.

Since then, Ontex has rallied and was one of the few Candover portfolio companies to be marked up in value last year. In March this year, Candover Investments revealed that it had written down a third of its portfolio to zero on a mark-to-market basis.

As for Wood Mackenzie, the sale generated initial proceeds for Candover of £36.2m, comprising £19.6m in cash proceeds and £16.6m in carried interest from Candover 2001, the fund used to make the original investment.

Bank of Scotland arranged a £60m debt package for Candover’s 2005 investment for a 43% stake in Wood Mackenzie, a transaction that valued the group at about £150m. Candover increased its stake in Wood Mackenzie to 67% in 2007, with management holding the balance.

Following the collapse of CVC Capital Partners’ £3.5bn tilt at Barclays’ iShares unit, in favour of the much larger £13bn takeover of all of BGI by BlackRock, Wood Mackenzie comfortably became the UK’s largest buyout of 2009.

Perhaps unsurprisingly given the near shutdown of worldwide leverage markets, it is also the fifth largest global private equity deal so far this year at US$903.2bn, some way behind Kohlberg Kravis Robert’s US$1.8bn purchase of Oriental Brewery, which took pole position.

Candover Investments said that, following the Wood Mackenzie sale, a reduction in headcount, including the closure of Candover Asia and Candover Eastern Europe, as well the temporary suspension of the Candover 2008 Fund, it was “confident that Candover will be in full compliance with the covenant obligations attached to its 2014 loan notes”.

The group added that it had adequate capital to meet follow-on commitments to its 2005 Fund, which is fully invested after co-investing alongside the 2008 Fund in oil and gas services group Expro.

A further sign of Candover’s growing confidence came in the declaration that it will announce its half-year results for the six months to June 30 2009 on August 21, indicating that it believes it will have survived as a going concern at that time, contrary to the downbeat speculation dominating several national newspapers’ coverage of the group.

Candover has already confirmed that it has received a number of takeover approaches, but declined to name potential suitors. Market speculation suggests that interested parties include Blackstone Group, Electra Partners and Coller Capital, with proposals ranging from buying minority stakes to full takeover offers.

Blackstone would not comment on the speculation, although the firm is not believed to have made any direct approach regarding Candover. Coller Capital declined to comment, although any interest the secondary player would have would more likely be in buying individual assets or limited partner positions in portfolio companies.

Coller Capital did, however, become the largest shareholder in SVG Capital, a listed fund that invests both directly and in other private equity funds including Permira, earlier this year. Coller garnered a 23.9% interest in SVG through a £70m private placement. Last year, it bought listed investor Prelude Trust for £24.2m.

Electra Partners declined to comment, although it is understood to have been one of the parties to have submitted bids to Candover that the group felt lacked “sufficient certainty and value to shareholders to justify further consideration”. Candover said, as a result, that “all offer discussions have now ceased”.