Private Equity Pitch: Funds exposed to UK consumer services providers

Hit the hardest among its European peers during the worst months of lockdown, the UK saw the bad performance of its economy exacerbated by a large dependence on the services industry.

The impacts were felt in particular by companies providing "highly consumer-facing non-essential services", to use the Bank of England classification for these businesses. According to a survey by the UK central bank, CFOs of companies in non-food retail, accommodation, and food and recreational services expected to see sales fall by at least 60% between April and June, more than any other segment within the services industry.

To assess the level of exposure of private equity firms to these areas, Mergermarket analysed how individual funds are invested in UK-based providers of consumer-facing services. Using information from Unquote Data, this examination identified six private equity funds that have been active investors in the leisure space and that currently hold at least two portfolio company from these sectors, making up a list of 13 assets in total (see the table below for details on funds and portfolio companies - you can also click on each fund to see the whole portfolio, including realised assets).

Bridgepoint Development Capital II seems to top the list of those most exposed to consumer-facing services, looking at a ratio between the number of companies operating in this space and the total number of portfolio companies currently held. The 2012-vintage fund, which closed on €353m, counts three businesses in the consumer-facing space in a portfolio of nine companies. The fund has already realised six investments.

Inflexion Buyout Fund IV and Exponent Private Equity Partners III also show exposure, with two businesses in the consumer-facing space in portfolios that count eight and 10 companies, respectively. The funds are both 2014 vintages; Inflexion's vehicle is nearing full deployment (98% as of March 2019) while Exponent III is fully deployed.

Livingbridge 6 and Vitruvian Investment Partnership III appear to have their exposure to consumer-facing services more diluted in larger portfolios with companies spanning other sectors. The Livingbridge 2016-vintage fund has two of such assets in a portfolio of 15 holdings and 33% dry powder left to deploy. Vitruvian's fund counts two consumer-facing businesses in a portfolio of 16 – deployment figures for the 2017 fund are not disclosed.

Mayfair Equity Partners I has a rate of two consumer-facing businesses in a portfolio of seven business. The 2015-vintage fund had 70% of its €400m deployed in January 2018, the latest available info.

In terms of sectors, concentration was especially high in travel companies, an area heralded by investors in the last decade as a beneficiary of mega-trends of growing tourism and business trips. Restaurants and bars were another point of concentration.

With the UK lockdown being eased, private equity managers hope that the worst is behind them – but new challenges loom. Working capital requirements for portfolio companies are likely to go up as businesses start to resume activities, while some government support initiatives such as the furlough scheme began being phased out this month.

On the positive side, there are signs that a recovery could be on the way, with services output, which was down 19.9% in 2Q20, growing by 7.7% in June.

The government-sponsored Eat Out to Help Out scheme, which ends at the end of this month, could contribute to restaurants regaining footfall. The addition of holiday destinations like France and Croatia to the UK quarantine list is expected to give a boost to travel firms focused on the domestic market, such as staycation specialist Sykes Cottages, featured in the table below.

A bigger help from the government could yet come with its reported intention to try to include sponsor-backed companies in its programmes of state-backed loans, with a view to rescue jobs at risk in high-street businesses.

Bridgepoint Development Capital II

• Manager: Bridgepoint
• Vintage: 2012
• Fund size: €353m
• Deployment: n/d
• Current holdings: 9, including 3 in consumer-facing services sectors
• Exits and fund performance: 6 assets realised, no performance figures available

Portfolio Companies (Sub-sector)	Description	Entry Date	Financials at Entry	Recent Intel	Advisory Relationship
Cruise.co (Travel & tourism)	Specialist online travel agent serving the UK and German cruise markets	Aug-16	Deal Value:£52m Revenue: £104.5m EBITDA: £5m	Aug-17: cruise.co.uk acquired German peer Kreuzfahrtberater for €25m	Financial: GCA Corporation; BDO Legal: Travers Smith; Noerr
Inspiring Learning (Travel & tourism)	Provider of educational residential activity centres and overseas tours for school children	Nov-16	Deal Value: £100m Revenue: £30.7m EBITDA: -£13.8m	n/a	Financial: Cornerstone Corporate Finance Legal: Macfarlanes
The Dining Club Group (Specialised consumer services)	Owner of discount dining clubs that provide offers through their websites and apps in conjunction with a membership card	Aug-15	n/d	Jun-16: Hi-Life Diners Club bought by The Dining Club from Hi-Life Group	Financial: Grant Thornton UK Legal: Brabners Chaffe Street

Exponent Private Equity Partners III

• Manager: Exponent Private Equity
• Vintage: 2014
• Fund size: £1bn
• Deployment: 100%
• Current holdings: 10, including 2 in consumer-facing services sectors
• Exits and fund performance: 2 assets realised, 1.21x TVPI as of March 2019

Portfolio Companies (Sub-sector)	Description	Entry Date	Financials at Entry	Recent Intel	Advisory Relationship
Big Bus Tours (Travel & tourism)	Provider of sightseeing bus tours in tourist destinations, including London, Paris, New York, Washington, San Francisco, Dubai, Hong Kong and Istanbul	Feb-15	Deal Value: £258m Revenue: £27m EBITDA: £8.9m	May-20: The company finalised discussions with lenders to tweak covenants and PIK interest payments as it dealt with a liquidity shortfall due to the Covid-19 lockdown, Debtwire reported	Financial: JP Morgan Legal: Allen & Overy; Johnson Winter & Slattery; WongPartnership
Leisure Pass Group (Travel & tourism)	City pass provider with operations in 19 cities across Europe and the US	Dec-16	Deal Value: £150m Revenue: £64m EBITDA: £10.9m	Aug-19: Exponent was readying The Leisure Pass Group and Big Bus Tours for a  sale, advised by Harris Williams and Bank of America Merrill Lynch, Mergermarket reported	Financial: Harris Williams Legal: Cooley

Inflexion Buyout Fund IV

• Manager: Inflexion Private Equity Partners
• Vintage: 2014
• Fund size: £650m
• Deployment: 98% as of March 2019
• Current holdings: 8, including 2 in consumer-facing services sectors
• Exits and fund performance: no assets realised, 1.31x TVPI as of December 2019

Portfolio Companies (Sub-sector)	Description	Entry Date	Financials at Entry	Recent Intel	Advisory Relationship
Scott Dunn (Travel & tourism)	Provider of luxury holidays from skiing and Mediterranean resorts to tailor-made journeys	Dec-14	Deal Value: £88m	n/a	Financial: Oaklins; Livingstone Partners Legal: Squire Patton Boggs
Reed & Mackay (Travel & tourism)	Travel management company focused on law firms, insurance companies, finance houses and the energy sector. It also provides an event management services	Aug-16	Deal Value: £170m Revenue: £33m EBITDA: £12.3m	Sep-19: Reed & MacKay could be among potential suitors for fellow UK travel agency Diversity Travel, which was expected to come to market in 2020, Mergermarket reported	Financial: Rothschild & Co; Liberty Corporate Finance; BDO Legal: Travers Smith; Ropes & Gray; Noerr

Livingbridge 6

• Manager: Livingbridge
• Vintage: 2016
• Fund size: £660m
• Deployment: 77% as of June 2020
• Current holdings: 15, including 2 in consumer-facing services sectors
• Exits and fund performance: no assets realised, 1.1x TVPI as of June 2020

Portfolio Companies (Sub-sector)	Description	Entry Date	Financials at Entry (GBP)	Recent Intel	Advisory Relationship
Love Holidays (Travel & tourism)	Holiday provider that allows customers to create bespoke holidays, with a focus on the Mediterranean and the Canary Islands	May-18	Deal Value: 180m Revenue: 41m EBITDA: 6.2m	n/a	Financial: PwC; Liberty Corporate Finance Legal: Travers Smith
Rhubarb (Restaurants & bars)	Operator of long-term contracts at venues and provider of bespoke catering solutions	Dec-16	Deal Value: 70-75m Revenue: 31.2m EBITDA: 2.1m	n/a	Financial: Liberty Corporate Finance Legal: Burges Salmon; Ropes & Gray

Mayfair Equity Partners I

• Manager: Mayfair Equity Partners
• Vintage: 2015
• Fund size: £400m
• Deployment: 70% as of January 2018
• Current holdings: 7, including 2 in consumer-facing services sectors
• Exits and fund performance: 1 asset realised, no performance data available

Portfolio Companies (Sub-sector)	Description	Entry Date	Financials at Entry	Recent Intel	Advisory Relationship
Tour Partner Group (Travel & tourism)	Multi-component package holidays provider for erudite travellers, specialising in the UK, Irish and Nordic markets with expanding operations in the US	Oct-15	n/d	Aug-19: Mayfair was assessing strategic options for Tour Partner Group, including further bolt-on acquisitions or an exit in 2020, Mergermarket reported	Financial: Liberty Corporate Finance Legal: CMS; Gorrissen Federspiel
Yo! Sushi (Restaurants & bars)	Japanese food company servicing the grocery channel and operating restaurants and kiosks in the US, Canada and UK with franchise operations in other territories	Nov-15	Deal Value: £81m Revenue: £75.8m EBITDA: £10.1m	Aug-20: Yo! Sushi tapped Deloitte to advise it during its rent negotiations with its UK high street landlords, Sky News reported. A company voluntary arrangement (CVA) is among the options under consideration to secure lease concessions	Financial: Spayne Lindsay & Co; Global M&A Partners Legal: DLA Piper; Torys; Linklaters

Vitruvian Investment Partnership III

• Manager: Vitruvian Partners
• Vintage: 2017
• Fund size: €2.4bn
• Deployment: n/d
• Current holdings: 16, including 2 in consumer-facing services sectors
• Exits and fund performance: no assets realised, 1x TVPI as of December 2018

Portfolio Companies (Sub-sector)	Description	Entry Date	Financials at Entry	Recent Intel	Advisory Relationship
Sykes Holiday Cottages (Travel & tourism)	Vacation rental management company focused on the staycation market	Oct-19	Deal Value: £375m Revenue: £68m EBITDA: £20m	Jan-20: Vendor Livingbridge re-invested in Sykes with a minority stake, following three bolt-on acquisitions made by the company	Financial: Jamieson Corporate Finance; Springboard Corporate Finance Legal: Hill Dickinson
Travel Counsellors (Travel & tourism)	Travel marketplace for self-employed travel agents with services targeting leisure and corporate customers	Jun-18	Deal Value: £250m Revenue: £217m EBITDA: £17m	n/a	n/a

 
Revenue and EBITDA figures reported in the financial year prior to the announcement date of the transaction

Source: Mergermarket, Unquote, Debtwire

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• Topics
• Investments
• UK / Ireland
• Consumer
• coronavirus
• Bridgepoint
• Vitruvian Partners
• Exponent Private Equity
• Inflexion Private Equity
• Mayfair Equity Partners
• Livingbridge