Coming clean

After months of negative press over its £400 million, (€446 million, $584 million) buyout of UK estate agent Foxtons, BC Partners broke its silence on the deal in a rare press conference in January.

The deal stirred controversy in the media even before it was agreed in June 2007. Bought just weeks before the credit crunch started in 2007, BCP modelled the deal on the assumption that UK property sales could not fall by more than 30 percent. Such a decline would have been equivalent to the lowest level seen in 30 years.

Even when it became clear that BCP had made a bad bet on the market, the firm still refused to comment, a strategy which seemed only to spur more bad headlines. But by the start of 2009, the firm decided to reverse course and address its critics.

“Obviously, we made the wrong call on the market,” managing partner Andrew Newington said over lunch with several reporters. He said that London market volumes in fact fell between 60 percent and 70 percent in a collapse whose steepness and suddenness was impossible to anticipate.

“It's not been a good story for us,” co-chairman Raymond Svider acknowledged, stressing that the equity investment in Foxtons represents only 1 percent of its current buyout fund and is mitigated partially by a contingent vendor loan linked to performance. And, despite defaulting on its covenants late last year, Foxtons remains profitable and continues to gain market share in an extraordinarily difficult housing market, Newington added.

While it's unclear how long it will take the UK property market to rebound, BCP may yet rescue the business, for instance by injecting fresh equity – a possibility Newington said the firm will consider “in the right circumstances”, namely if its debt load is reduced. Its lenders, Bank of America and Mizuho, have been described as supportive and the three parties are engaged in monthly discussions. The agreement of a new capital structure post-first quarter earnings reports is a distinct possibility.

The investment represents just a £50 million equity cheque and only a small proportion of the firm's €5.9 billion Fund VIII. Asked if LPs resent the amount of time one of its managing partners spends on the deal given its size, Svider responded with a point rarely mentioned in the inches of newspaper ink that's been spilled over Foxtons: just as it has a responsibility to its LPs, BCP has a commitment to its portfolio companies' management teams. Simply because a company runs into some trouble is not “a good enough reason to step away”, he said. It would be hugely damaging to any private equity firm's reputation as a trustworthy proprietor.

Around the time of the conference, the firm announced the retirement of chairman Jens Reidel after 16 years at the firm.