EQT & Macquarie win Compass bid battle

Compass Group, a UK-listed contract caterer, has agreed to sell its travel-concession catering subsidiary, Select Service Partner, to a private equity-led consortium for £1.82bn (US$3.18bn).

Australia-based Macquarie Bank will buy SSP’s UK motorway services business, Moto, with Nordic buyout firm EQT acquiring the remainder, or two-thirds, of the SSP business, including the Creative Host Services arm in the US. Compass, however, will retain a small part of the travel-concession catering business, mainly in Japan and Portugal.

The price agreed in the Citigroup-run auction was about 30% more than initial expectation of between £1.2bn and £1.4bn, and represents 16x SSP’s 2005 operating profit before goodwill amortisation. For the 12 months to September 30 last year, SSP recorded operating profit before goodwill amortisation of £114m on turnover of £1.8bn. SSP operates catering for 600 roadside, railway and airport concessions in 26 countries in the UK, Continental Europe and the US and has gross assets of £1.66bn.

Macquarie and EQT fought off buyout rivals PAI Partners, Terra Firma and CVC Capital Partners in the final round.

Compass said it would use the proceeds, after £180m in tax and other transaction costs, to pay off about £750m of its £2.3bn debt; buy back £500m-worth of its shares; contribute £275m to its UK pension scheme, which is £331m in deficit under FRS17 accounting rules; and spend £143m on acquiring the 51% of the US-based Levy Restaurants business it does not already own.

Compass paid US$87m for 49% of Levy in September 2000, although turnover has nearly trebled since then. Separately, Compass has sold 90% of its European Inflight catering business for £57m to the unit’s management team, which was led by Olivier Sadran. In the year to last September 30, Inflight posted recorded operating profit before goodwill amortisation of £8m on turnover of £139m.

Andrew Martin, finance director of Compass, said: “Completion of the sale enables us to focus on the core contract catering and support services business, and to exploit the significant organic growth opportunity from a strong financial base.”