Turbulence Delays Advent’s Airport Deal

After watching its debt agreement wither in the credit freeze, Advent International last month closed a long-negotiated deal to buy Hudson Group, an operator of convenience stores in airports in the United States.

Despite a slowdown in consumer spending and spikes in airfare, the Boston-based firm’s confidence in Hudson Group stems from the resilience the company has shown in past downturns, said Jeff Case, principal with Advent International. After 9/11, when many consumer-oriented companies faltered, Hudson Group grew, benefitting from the tightened security. Sales of sundry items and liquids increased because the retailer’s shops are located behind security gates.

Further, Hudson Group has an edge over traditional, non-airport retailers since it negotiates with the airports to be the exclusive store of its type. Even with rising fuel prices (and subsequently rising ticket costs) threatening the company’s growth trend, Hudson’s sales increases have historically outpaced airline passenger growth, Case said.

Despite Hudson Group’s smooth sailing performance, the deal itself hit turbulence early on. Advent International approached Hudson’s family owners a year ago and soon inked an agreement to buy 80 percent of the business, with informal debt commitments in place.

“A couple of the large Wall Street banks gave us very attractive terms, covenant-lite, and as much debt as we wanted,” said Case. But by mid-July those banks vanished from the table. “We essentially needed to start over,” Case said.

Even with Advent International’s growth plan for the company and wealth of experience in the sector, alongside Hudson Group’s recession-defying track record, the deal still took five months to syndicate.

“The challenge wasn’t the business,” said Peter White, managing director of sponsor finance for CIT Group’s Investment Banking Services team, which led the pool of debt investors. “The challenge was bringing a deal to market in January, during the worst market we’ve seen in 20 years.”

Advent International contacted more than 30 debt providers, and after six months found a willing lender in CIT Group. The specialty lender committed $295 million in first-lien debt. Subordinated debt specialist Solar Capital invested more than $100 million in a second-lien facility, alongside Ares Capital and a handful of other lenders. Owner John Cohen remains a board director, and his family retains 20 percent of the company. The deal value is undisclosed.

CIT agreed to underwrite the deal in part because of Advent International’s strong track record in air travel retail, White said. Hudson Group is Advent International’s tenth investment in the sector; it also owns Dufry, a Swiss duty-free retailer the firm partially floated on the Swiss stock exchange in 2005, as well as the largest restaurant operator in Brazilian airports.

Advent International plans to forge a partnership between Hudson Group and Dufry but not merge the companies. The businesses can benefit from each other’s footprints: Hudson Group operates in the United States and Canada while Dufry is global. Hudson Group and Dufry will share best practices, make introductions, and help each other gain traction in new markets, Case said. Hudson Group should be able to expand into the Caribbean, Latin America, and then Europe, he added.—E.G.