Warburg Pincus taps 6.5x from Nectar divestment

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Warburg Pincus has reaped 6.5x its investment from the sale of Loyalty Management Group (LMG), the operator of the Nectar programme, to Toronto Stock Exchange-listed Aeroplan. Aeroplan acquired LMG for a total consideration of £368m, of which working capital adjustments accounted for £18m.

"By any measure, the company executed its business plan successfully," commented Joseph Schull, who led the deal for Warburg Pincus and was an LMG director during Warburg's five-and-a-half-year holding period. Warburg Pincus invested £25m in LMG in 2002. The deal represented LMG's first and only institutional funding round and saw Warburg Pincus acquire a 35% stake in the business, which was established in 2001.

"More than anything this is the story of a very experienced and capable entrepreneurial management team which had successfully launched loyalty schemes in other parts of the world before coming back to the UK to do a consolidation play in a market that was ripe for it," Schull explained.

LMG's growth was driven by both consumer and retailer demand for its offering. From the consumer perspective, the Nectar programme was adopted by 15 major retailers including Sainsbury's, EDF, Debenhams and BP. By 2006, LMG had revenues of about £200m and more than 10 million households had signed up to the scheme. (Page 38).