Private equity's sin-vestments

Mikkel Stern-Peltz
24 November 2015

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While private equity LP agreements usually preclude GPs from investing in arms, pornography and tobacco, the industry does not always shy away from risqué assets. Mikkel Stern-Peltz lists six private equity “sin-vestments”

1 – Agent Provocateur
In November 2007, perhaps trying to get the Christmas shopping done early, 3i bought British luxury lingerie brand Agent Provocateur.

Launched by the son of Vivienne Westwood, the brand's products have never been known for those on a budget, and 3i paid a pretty £60m for its 80% stake.

With a range of provocative panties, nipple pasties and paddles, the company has expanded from just one store when it launched in 1994, to 88 in 2014, much of which has been down to 3i's ownership.

Last year the company, whose products are favoured by celebrities such as burlesque star Dita von Teese, posted profits of £3.8m.

2 – Amorelie
Perhaps looking to spice up their portfolio a little, Paua Ventures, TA Ventures, German Startups Group, ProSiebenSat1 and Otto Capital backed German online adult toys shop Amorelie over two funding rounds in December 2013 and January 2014.

The retailer of sex toys and boudoir accessories is based in Berlin, offering products such as whips, vibrators and lingerie. The VCs' affair with Amorelie was short-lived however, as they exited the company to ProSiebenSat1's e-commerce investment arm 7Commerce in March 2015.

3 – Bargain Booze
Although less risqué than sex toys or suggestive lingerie, ECI Partners' acquisition of British alcohol discount retailer Bargain Booze also finds its way onto the sin list.

Bought in a £63.5m carve-out from Electra Partners's BWG in January 2006, the purveyor of cheap booze nearly doubled its number of franchises under ECI's ownership.

Listed on the London Stock Exchange in July 2013 with a market cap of £66.7m, the GP's 4.5x exit multiple will have gone down smoothly.

4 – Sky Bet
CVC's £800m buyout of online betting company Sky Bet saw CVC carve out an 80% stake in a 15x EBITDA acquisition, with the remaining 20% retained by British broadcaster Sky.

The GP may well have dealt itself a good hand by investing in Sky Bet's offering of online betting, gambling and casino gaming: the company operates in a market worth $41.4bn globally in 2015 – growing from $25.8bn in 2009.

5 – Hunkemöller
Dutch lingerie producer Hunkemöller found itself lusted after by PAI Partners, which paid a rumoured €200-250m for the company in November 2010.

The deal saw PAI carve out Hunkemöller from Netherlands-based Maxeda Retail Group, jointly owned by KKR, Cinven, AlpInvest and Permira.

Hunkemöller's lines of lingerie appear to be quite popular across Europe, where the company has opened more than 100 shops since the buyout. PAI appears to be offering considerable support to Hunkemöller, with plans to grow the company's number of stores from the current 600 to 900 by the end of 2017.

6 – Wonga
While not dealing in anything more sinful than payday loans, VC-backed Wonga still found itself chastised by the head of the Church of England.

The payday lender – which received funding from Accel, Balderton, Dawn Capital, 83 North, Meritech, Oak Investment Partners and the Wellcome Trust – was told by Archbishop Justin Welby that the Church planned to do away with Wonga's predatory lending practices by competing it out of business.

Welby's war on Wonga wound up being somewhat embarrassing for the clergyman when it was revealed the Church of England had indirectly invested £75,000 in the lender.

The archbishop only had to endure a little embarrassment, but the VCs' investment may find itself trapped in purgatory as aggressive regulations are put in place by the UK's Financial Conduct Authority. One economist who worked with the FCA forecast an extinction of high street payday lenders by the end of 2015.