Cinven in £150m buyout

Phoenix Equity Partners is due to reap a 6.7x return on its money from the sale of Partnership Group Holdings to buyout heavyweight Cinven.

UK mid-market player Phoenix sold the business for an enterprise value of £150m after Cinven made an unsolicited approach for the retirement annuity company, which specialises in impaired life expectancy.

Partnership is a small deal by Cinven’s usual standards. The current climate has forced buyout houses to work hard to tease out good opportunities whatever their size and Cinven believes it has found one.

“Through our strong sector focus and fundamental research, we are delighted to have found a market-leading business, with unique intellectual property and a strong management team,” said Peter Catterall, a partner at Cinven.

Partnership certainly generated impressive returns for Phoenix. “We grew Partnership from a small business to a market leader,” said Sandy Muirhead, managing partner of Phoenix, who led the deal. “The business performed very strongly, reaching its five-year sales plan in two years.”

The strong performance of the investment over the first two years, combined with the successful flotation of Partnership’s peer Just Retirement, backed by Langholm Capital, in December 2006, prompted Phoenix to consider an IPO in mid-2007. However, the subsequent disintegration of the capital markets persuaded it otherwise.

In January this year, Cinven approached Phoenix, which owned a 79% stake in the company, with a “persuasive proposal” and the secondary buyout went ahead. Closure of the deal is subject to ECMR antitrust clearance and approval from the UK Financial Services Authority.

Phoenix backed the £30m buyout of the business, then the Pension Annuity Friendly Society, in September 2005 in the UK’s first-ever private equity-led demutualisation of a financial services mutual company. It invested £16.5m in Partnership over the course of the investment. Bank of Scotland provided debt to support the deal.

“It was a complicated deal to put together but we worked very closely with a strong management team,” said Muirhead. The switch to defined contribution pension schemes, favourable demographics and investment in the company’s infrastructure, product range and distribution channels (the latter through two small acquisitions) helped to fuel Partnership’s growth.

The successful divestment of Partnership joins two other recent convincing exits by Phoenix. Late last year, it sold restaurant chain Gaucho to ICG for an undisclosed sum, making 2x its investment after buying it for £55m in August 2006. It also sold handbag company Radley & Co to Exponent for £130m, recouping 3.8x its money. Phoenix closed its last fund on £375m in March 2006.