Palamon Celebrates Cambridge Education Refinancing

Private equity firm Palamon Capital Partners has completed the refinancing of its English language school group Cambridge Education, writes Reuters. Palamon Capital Partners’s deal with Royal Bank of Scotland for a new 23 million-pound ($37 million) debt package will see it recoup 1.5 times the equity it has invested in the business, and leaves finances for continued expansion of the group, according to Reuters.

Reuters – Private equity firm Palamon has completed the refinancing of its English language school group Cambridge Education, the first time in more than a year that a private equity house has effectively tapped British banks to pay itself a dividend on an investment.

Palamon Capital Partners’s deal with Royal Bank of Scotland for a new 23 million-pound ($37 million) debt package will see it recoup 1.5 times the equity it has invested in the business, and leaves finances for continued expansion of the group, which provides English language training and university foundation courses for overseas students at its schools in London, Brighton, Cambridge and Canterbury.

Palamon is due to announce news of the debt refinancing more widely later on Monday.

At the peak of the buyouts bubble, so-called dividend recapitalisations were all the rage as private equity firms took advantage of red hot debt markets to refinance their businesses and pay themselves dividends in the process.

But they have all but vanished in Britain and Europe as banks rein in lending across the board and become far more cautious about financing private equity-backed firms in particular.

Palamon’s new financing package is the first sterling loan taken out to pay a private equity owner a dividend since 3i Group put in place a 73 million pound package for testings business Environmental Scientifics Group in September 2010, according to Thomson Reuters LPC data.

But the deal is unlikely to herald a wave of recapitalisations of private equity-owned companies in Britain as banks, under pressure to increase lending to small businesses, shy away from practices that could draw fire from critics.

“The banks are very selective in today’s market around letting people do these kinds of transactions,” Palamon partner Dan Mytnik told Reuters in a telephone interview.

“These kinds of tools can be perceived as something that is not always in the banks’ best interest. And five years ago many were done that probably shouldn’t have been done.”

The process of refinancing companies to pay buyout firms dividends became highly controversial as high debt levels hampered many companies’ ability to grow and left lenders facing the embarrasing prospect of losses on debt they had issued.

Following the refinancing, Mytnik said leverage on Cambridge Education would be very modest, in the range of two to three times earnings before interest, tax, depreciation and amortisation.

That’s less than many recent private equity deals, boasting debt packages routinely of five or six times earnings.

GROWTH CAPITAL

At the same time as netting Palamon an interim return, which is being distributed back to its investors, the refinancing will provide firepower for expansion of Cambridge Education which last Autumn opened a new college in central London’s Bloomsbury district.

Five years after backing a management buyout led by former Capital One Europe managing director Fergus Brownlee, Palamon intends to hold onto the company for another couple of years, Mytnik said.

“The decision in the middle of recession to open an expensive new campus in London requires considerable upfront investment to the tune of several million pounds. We want to see a return on that and that’s the core reason for holding on to the business for another year or two,” Mytnik said.

In the last year, Palamon’s investors have seen cash back from the sales of businesses including credit cards business SAV Credit and on-line fashion business dress-for-less.

“You should only sell if you can get tomorrow’s price today, in my view, and if you are not quite getting that but you believe the business has got future upside why shouldn’t you take some money off the table?” said Billy Gilmore, investment director at private equity investor SWIP.

“You have still got an undiluted equity stake and the business has got an efficient capital structure for the future.”

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