“For all of [former interim CEO] Mr Bramson’s promises to make the company better, all he did was engineer a liquidation.” These are the unvarnished words of one public equities analyst summing up the situation at Electra Private Equity.
The London-listed firm announced last week that it had ended its quest for a buyer, having been on the lookout since May. In a communication published on its website, Electra wrote that while the board had received interest in acquiring each of its remaining five portfolio assets, individually and in groups, “no firm interest has been received in acquiring the company”.
A failed sales process represents the nadir for one of the UK’s oldest private equity firms and a once very successful one. It is the culmination of a series of management changes, strategic decisions and market shifts that have formed an unhappy confluence in recent years.
In November 2015, activist investor Edward Bramson was appointed as a non-executive director. In May 2016 he instigated a strategic review that saw the company’s general partner Electra Partners – now renamed Epiris – served a 12-month termination notice in order to save approximately £28 million ($36 million; €31 million) in management fees per year.
Once notice was served the GP went on an exiting spree, driven by the desire to lock in performance fees before its tenure was through. Between September 2015 and October 2017 the firm disposed of all funds, secondaries, debt and listed-asset investments, and reduced its direct unlisted portfolio from 25 companies to the five that remain today. Within that context, it’s clear why many buyers view what’s left as the rump of Electra’s portfolio.
In addition, the two control assets, restaurant chain TGI Fridays and footwear retailer Hotter Shoes, are heavily exposed to the post-Brexit UK consumer market. Although Electra’s pricing expectations were not clear, it seems that no investor was optimistic enough to meet them.
“You have to question the quality of the remaining assets,” says one listed PE executive. “Also, buyers would just want the assets and not the hassle of having a listed company they need to wind-down, with all the reporting and regulatory burdens. It’s cleaner to bid on the assets they want directly.”
Electra is now doing exactly that, trying to negotiate the sale of its assets either individually or as a bundle. It is not a straightforward proposition.
The problem of portfolio concentration, heavy exposure to one sector and geography, remains. In addition to the control stakes, the portfolio contains minority positions in online photo printing company Photobox, residential property manager Knight Square and heating and water systems firm Sentinel.
Even if the stakes in TGI and Hotter Shoes prove attractive, it is less clear why a buyer should take stakes in three firms with hazy exit horizons over which they have no control. And according to one buyside source, the failed sales process creates a hint of desperation that will make it hard for Electra to drive a higher price – “now they look like a seller”, he tells Secondaries Investor.
Nevertheless, 2018 has shown that there are still good firms willing to take a bet on the UK’s retail sector. In July, Glendower Capital emerged as the backer of a GP-led process on the 2006-vintage BlueGem Capital Partners, a majority of whose net asset value rests in UK wine wholesaler Enotria & Coe and Private Clinic Group, a UK-based chain of cosmetic surgeons. And, as the saying goes, for the right price, anything is possible.
Write to the author: rod.j@peimedia.com
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