Loyalty Management UK (United Kingdom) - Nov 2007

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01 November 2007

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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. The purchase price is subject to a holdback of £31.6m, the future payment of which is subject to the successful outcome of the company’s outstanding VAT litigation.

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. At the time of the investment, Barclays Bank also provided a £25m debt facility which was never fully drawn down and had been repaid by the time of the exit. .

By 2006, LMG had revenues of approximately £200m and more than 10 million households had signed up to the scheme, representing penetration of over 50% of all UK households. London-based LMG employs 200 staff and also owns Air Miles International Trading. Having grown the business to a substantial scale, Warburg Pincus was in the preliminary stages of considering an eventual flotation or trade sale when it received an unsolicited approach from Aeroplan during the summer. Aeroplan had been tracking LMG and viewed it as an important platform for international expansion and presented Warburg Pincus with a compelling offer. The valuation is understood to be based on a 12.5x multiple of expected 2008 calendar year EBITDA.

Advisers

Company - Lovells, Jim Harper, Peter Watts (Legal)Equity - Freshfields Bruckhaus Deringer, Adrian Maguire, Edward Green, James Wood (Legal)Purchaser - Royal Bank of Canada, (Corporate Finance)