Financial Times - 26 Feb 07
WELCOME BREAK TO SEAL £300M RECAPITALISATION
Welcome Break will this week complete a £300m leveraged recapitalisation that will value the UK's second-largest motorway service operator at about £500m and generate a large capital return to its private equity backers of 10 years.
The recapitalisation, resulting in a dividend payment of about £150m to Investcorp, is an example of a private equity firm helping to nurse one of its portfolio businesses out of intensive care.
It is also a useful reminder of how long it can take to resuscitate a business saddled with too much debt.
Focus, the DIY group owned by Apax and Duke Street, has a heavy debt burden and is seeking a financial reconstruction.
Polestar, the printing group also owned by Investcorp, last year completed a restructuring that cut its total debt by almost three-quarters but left its backers losing about £700m.
Investcorp bought Welcome Break, second in the UK market behind Macquarie Bank-owned Moto, in 1997 for £473m, financing the deal through a pioneering "whole business" securitisation involving a £376m bond issue. The initial plan was to invest heavily in run-down sites to transform profit growth, but that strategy failed causing the bond price to collapse.
Philip Yea, now chjief executive of 3i, joined Investcorp in 1999 with the specific aim of helping to help resuscitate Welcome Break before Rod McKie, a former Pret a Manager executive, was brought in to help run the business in 2001.
Mr. McKie became chief executive in 2005. He said of the refinancing: "Our primary objective has been to establish a capital structure that recognises the infrastructure characteristics of the business."
Welcome Break's 23 sites with average leases of 33 years have an annual footfall of 80m people and provide highly-stable long term cash flows.
He said that with an improved customer offering, like-for-like sales were rising at 8 per cent. "Investcorp is a supportive and patient investor," he added.
In 2004, Welcome Break sold nine buildings for £270m to Robert Tchenguiz, the property investor, as part of a rescue package that also saw an emergency injection of capital from Investcorp.
Investcorp is thought to have invested more than £400m into Welcome Break. NM Rothschild advised Welcome Break and Investcorp on the recapitalisation.