Exits: Carving out value

John Bakie
23 August 2010

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With exit maximisation key in todayтs economically unstable times, a number of private equity funds have recently chosen to sell their assets in smaller chunks, in the hope of attracting more specialist buyers. John Bakie reports

United Biscuit owners Blackstone and PAI Partners have today received a bid for the company's biscuit division. The private equity owners had already stated they were hoping to sell the business's biscuit and snack operation separately, and a number of bidders are thought to be interested in the larger biscuit business.

The separation of United Biscuits follows a number of recent exits, where the private equity owners have carved out non-core divisions to sell to relevant buyers. In July, PAI partners sold the insurance division of UK auto-repair company Kwik-Fit to Fortis. The sale allowed Kwik-Fit to pay down some of its debts, while at the same time enabling PAI to sell parts of the company to more relevant bidders. Fortis would likely have little use for a chain of auto-repair shops, and a motor trade bidder also may not wish to take on an insurance operation. By splitting the business, PAI is likely to extract more value from the company over the investment period.

Similarly, CapMan sold Farmos Oy, a household cleaning products provider, to trade player KiiltoClean Oy in mid-August. It originally acquired Farmos as part of Lumene, and spun it out in 2008. Lumene, which now focuses solely on cosmetic and hair products, was also able to pay down debt in a refinancing arrangement at the time of the spin-out. Other recent examples of similar exit strategies include NEON Private Equity's sale of Kuiken Group's German subsidiary, Könicke, and 3i's disposal of Inspectorate, a specialised division of Inspicio.

With the IPO market being somewhat difficult so far in 2010, private equity divestments have been mainly spread among trade buyers as well as fellow private equity funds. By carving out non-core divisions of existing portfolio companies and selling to the most appropriate players in a given sector, funds are making the best of a challenging exit market.