UK buyout group Candover has entered talks with “selected parties” on a potential takeover of Candover Investments, its listed fund of funds vehicle, after slashing the value of the listed fund's portfolio by about 50 percent and suspending investment activity from its most recent buyout fund.
“The board of directors of the company confirms it has received indicative expressions of interest covering a range of options for the business including potential offers for the company,” Candover said in a regulatory filing last week. “The company expects to enter into preliminary discussions with selected parties but emphasises that there can be no certainty as to the outcome of such discussions.”
Rumours have swirled in recent days that the fund of funds could be taken over by fellow buyout groups, or purchased in part or in whole by secondaries investors. Secondary firm Coller Capital recently purchased a stake in SVG Capital, another London-listed fund of funds facing liquidity issues and coping with an over-commitment strategy that has ultimately reduced the size of the latest fund from Permira, the buyout group with which it is affiliated.
Candover called The Blackstone Group to engage in dialogue, though nothing is likely to come of the talks, according to a person with knowledge of the situation.
Candover's shares jumped more than 28 pence to 147 pence per share on the news Friday, and were hovering around 152.75 pence per share Monday.
Candover faces several challenges in the short term, including its heavy debt load, which accounts for 21 percent of the gross portfolio value, according to an analyst report from JPMorgan Cazenove. The future of the firm will depend largely on the outcome of negotiations with LPs in the 2008 fund, the report said.
“The best scenario for shareholders and employees . would be one in which the 2008 fund is at least €1 billion in size, the GP is sold to management for a reasonable sum, some or all of the assets are sold to a secondary player at a significantly narrower discount than the one prevailing in the market, the debt is repaid and excess capital is returned to shareholders as soon as possible,” analyst Chris Brown said in the Cazenove report.
Candover wrote down by 50 percent its investment in Expro, and completely wrote off its investment in fitness equipment maker Technogym, according to the report. Candover bought a 40 percent stake for £70 million in Expro, an oil and gas services company, in a consortium deal last year valued at about £1.8 billion. The firm also took a 40 percent stake in Technogym, but financial details of the transaction were not disclosed.
The Expro investment was made from the firm's most recent fund, Candover 2008, which collected €3 billion in commitments from limited partners. Candover told investors in February that it would have to “significantly” reduce its €1 billion investment in the fund.