Exits – PPM Ventures sells Tetley and Gala

In the largest cross-border acquisition by any Indian corporate, Tata Tea in late February paid GBP271 million ($424 million) for Tetley Tea. Tata is the world’s largest tea producer and Tetley the world’s second largest tea bag brand. The ground-breaking deal enabled PPM Ventures and Schroder Ventures to exit their investment in Tetley, dating from 1995 when the company was bought out from Allied Domecq for GBP185 million. Earlier this year, Tetley sold its US coffee interests to Rowland Coffee Roasters and Mother Parker’s Tea & Coffee for an estimated GBP50 million.

The Tetley disposal delivered PPM Ventures an IRR of almost 26 per cent, reports director Martin Clarke, who led the original deal and has managed the investment and exit. PPM Ventures, which invested GBP40 million in equity, received GBP85 million through the sale and netted a further GBP12 million in dividend payments during the life of the investment. Schroder Venture’s original investment was approximately GBP38 million. PPM Ventures and Schroder Ventures are providing a GBP20 million vendor loan to support the Tata deal.

The eventual exit from Tetley follows a couple of false alarms. In 1998, the teamaker was lined up for an IPO but the float was pulled because, Martin Clarke explains, of unrealistic’ price expectations on the part of the then management team. Shortly afterwards, US foods group Sara Lee approached Tetley’s owners but that deal never got off the ground.

After the Tetley flotation was pulled, the private equity backers replaced Leon Allen, whom they had introduced to head Tetley’s management team at the time of the buyout, with Keith Pringle. Commenting on the sale to Tata, Pringle observes “This will result in a new agenda for aggressive growth and expansion worldwide, including new territories and product categories for both Tata and Tetley”.

Some two weeks after the announcement of the Tata-Tetley deal, PPM Ventures secured a second exit, selling Gala Group, the bingo and gaming business, to Credit Suisse First Boston Private Equity in a GBP400 million ($626 million) deal. PPM backed the GBP279 million buy-in of Gala from Bass in 1997. Since then, a substantial investment programme and the acquisitions of Ritz and Jarglen have established Gala as the leading player in the UK bingo market with a chain of some 150 clubs. The company increased its EBIT by almost 35 percent to GBP37.4 million in the year to September 1999.

PPM Ventures is reinvesting in the secondary buyout. PPM Ventures director Matthew Turner reports “Our investment in Gala has created excellent value for all the original investors. Because of our confidence in the management and the business strategy going forward, we have decided to invest significant new monies to pursue further growth”.