Deal in Focus: ECI and Livingbridge sell Reed & Mackay to Inflexion

Inflexion's acquisition of London-based Reed & Mackay marks the third period of private equity ownership for the business. Livingbridge (at the time known as Isis Equity Partners) acquired a significant minority stake in the travel company in 2005 through its Baronsmead VCTs, investing £4.87m as part of a £10m deal. Six years later, ECI joined Livingbridge in a buyout valuing the company at around £50m. The 2011 transaction - which saw Livingbridge's Baronsmead VCT fully exiting its investment - yielded a multiple of 4.8x and an IRR of more than 35%.

Under the stewardship of ECI and Livingbridge, the company has undertaken an international expansion strategy, most recently opening offices in the US and UAE, as well as in Scotland. It has also invested in its digital services by developing its online booking system and bespoke mobile app, as well as introducing the IQ Protect travel risk platform. During the five-year holding period, Reed & Mackay has expanded its headcount from 250 to 400 and doubled its EBITDA.

It's definitely the case that there is another chapter for Reed & Mackay under private equity ownership. That is likely to involve a focus on further developing the international platform both organically and through acquisitions" - Chris Watt, ECI Partners

With the business having already undertaken 11 years of private-equity-backed expansion, it is reasonable to question how much room there is for continued growth under Inflexion. In particular, further to its direct presence in three major markets, the company has also developed a global affiliate network, giving it a far broader reach.

Yet ECI partner Chris Watt explains the international growth strategy of the business is still at a relatively early stage, adding it was the management team's preference to continue under PE stewardship. "It's definitely the case that there is another chapter for Reed & Mackay under private equity ownership," he says. "That is likely to involve a focus on further developing the international platform both organically and through acquisitions. There are certainly more opportunities for the current team working within a private equity environment before looking towards a trade sale."

Patience rewarded
ECI and Livingbridge began exploring a potential exit from the business during the summer of 2015. However, after initial sales discussions the owners decided they could obtain more value by starting to implement the international growth plans the company had laid out. This also offered the added benefit of highlighting the viability of the management team's strategy to potential suitors.

"Once we felt we had made a reasonable amount of headway, we recommenced the sales process," says Watt. "Because we had already held conversations with a number of potential buyers, both trade and private equity, we had obtained a good indication as to who the more likely parties - those with the strongest appetite - were. It had been evident that the value we were likely to achieve from private equity was at least as good as we would get from trade. That suited what the team wanted to do as well, so it worked for everybody."

It had been evident that the value we were likely to achieve from private equity was at least as good as we would get from trade. That suited what the team wanted to do as well" - Chris Watt, ECI Partners

ECI and Inflexion both have track records of generating solid returns from the travel sector. ECI acquired LateRooms.com in 2004 in a £21m deal, before selling the business to First Choice Holidays for £108m three years later - representing an IRR of more than 500%. The firm is also currently invested in rail tour business Great Rail Journeys, which it bought from Primary Capital in a £50m secondary buyout in April 2013.

Inflexion, on the other hand, sold Griffin Global Group to travel management and events business ATPI in 2014 in a deal reportedly valued at £120m. The sale - following a five-year holding period - represented a 2.8x return for the GP. The firm also acquired online travel agent On the Beach from Livingbridge in a £73m deal in November 2013. On the Beach floated on the London Stock Exchange with a £240m market cap in September 2015, generating an IRR of 84%.

"We have been consistent investors in the travel sector for around 20 years," says ECI's Watt. "As well as business travel, our investment strategy in the sector has encompassed both traditional leisure tour operator models such as Great Rail Journeys and tech-enabled online businesses such as CarTrawler. It's always been a successful sector for us. We're down to just one travel business in the portfolio now, so we're keen to top up."

People
ECI - Chris Watt (partner).
Livingbridge - Shani Zindel (partner).
Inflexion - Simon Turner (managing partner).
Reed & Mackay - Fred Stratford (CEO).

Advisers
Equity - Eversheds (legal).
Vendor, company - Rothschild (corporate finance); Travers Smith, Edmund Reed, Lucie Cawood, William Young (legal).
Management - Ropes and Gray (legal); Liberty Corporate Finance (corporate finance).

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• Topics
• Exits
• UK / Ireland
• Consumer
• Buyouts
• Deal in focus
• United Kingdom
• Inflexion Private Equity
• ECI Partners
• Living Bridge