Deal in focus: Risk Capital buys Neilson from Thomas Cook

The deal comes as Thomas Cook continues to work on its turnaround strategy after nearly collapsing in 2011. Led by CEO Harriet Green, the travel company has embarked on a disposal programme, relinquishing a number of non-core businesses.

Carving out divisions from large corporates has long been a source of dealflow for private equity houses. And following the 2008 downturn, which caused many corporates to narrow their operations to their core offering, these sorts of deals were expected to rise significantly. However, the complexity of untangling one division from its parent has meant that carve-outs have often gone to trade buyers with a matching or complementary business offering.

A recent example of this was Netherlands-based Vion Food Group's sale of its ingredients division, which attracted interest from a plethora of buyout giants including Advent International, CVC, Apax, BC Partners, Bain Capital, KKR, Blackstone and Cinven, but in the end went to trade buyer Darling International because of its ingredients manufacturing offering.

But according to Risk Capital's chairman, Luke Johnson, the buyout house was approached by Thomas Cook to make an offer on the division.

With the financial crisis knocking the UK private equity supply and demand balance out of whack, with a glut of funds chasing a handful of deals in more recent years, Thomas Cook's approach to Risk Capital is refreshing and reminiscent of the hey-day, when the asset class wasn't scrambling to put cash to work.

As Thomas Cook aims to raise £100-150m by the end of its 2015 financial year, assets to be sold will clearly need to attract high bids. And, according to the most recent unquote" Private Equity Barometer, the value of deals throughout Europe in the first three quarters of this year rose to €54.5bn, up from the €52bn recorded over the same period last year. Therefore, it is understandable Thomas Cook would naturally turn to the asset class in order to sell off divisions at the best price. However, according to Johnson, one of the reasons for making an offer on Neilson was that it was being sold at a reasonable price – £9.15m.

Perfect fit
Perhaps Thomas Cook realised a private equity owner would be best suited to Neilson, as it moves away from its parent and establishes itself as an independent brand. This is something that Risk Capital is certainly capable of, having grown branded businesses including PizzaExpress, Giraffe, Signature Restaurants (including The Ivy and Strada) and Patisserie Valerie.

Furthermore, Risk Capital has experience in the leisure space, having most recently acquired online cruise holiday website operator Cruise.co. Indeed, Johnson is aware of the challenges involved in the sector: "Every travel business is seasonal, it's a regulated industry, it's a highly competitive market and it is subject to uncontrollable factors such as naturally occurring phenomena."

Despite the obstacles, Johnson believes active holidays are a resilient niche in the travel space. Neilson's key offerings are sailing, skiing and beach trips. He also feels the current macroeconomic environment is just right: "In a recovering economy, or one that is due to recover, big-ticket purchases such as holidays are back on people's agendas."

Furthermore, despite being up until now owned by Thomas Cook, Neilson has created a brand name for itself, which if nurtured and developed, should aid better customer recognition and loyalty – vital for surviving a competitive market.

Although, despite several reasons for this sell-off to be viewed as an encouraging sign for corporate carve-outs, it must also be noted that Thomas Cook is under pressure to dispose of divisions and private equity is eager to buy. Furthermore, as the leisure industry is so highly competitive, it is possible that Thomas Cook was keen to avoid handing over Neilson to a rival firm, enabling a market opponent access to quick growth and a raft of existing customers.

People
Risk Capital Partners - Luke Johnson, Michael Simmonds

This deal was originally covered on 25 November 2013

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