Andrew Newington, a partner at BC Partners, told a press briefing that Foxtons breached performance terms set by lenders in BC Partners’ reportedly £400m buyout of the upmarket London estate agency in May 2007, Bank of America and Japan’s Mizuho.
“As housing markets fall, so do estate agents, so we got that wrong. In hindsight, we made the wrong assessment of the market.”
The fate of the business is now believed to be in the hands of the banks, with BC Partners reportedly refusing to inject further cash until some of the £260m debt is written off by the banks. Newington, however, said that BC Partners “would be preparted to back a capital structure more suited to the current environment”.
Newington said that his firm put just £50m into the Foxtons buyout, with founder Jon Hunt agreeing to lend BC Partners a further £50m for the acquisition, putting the total price at nearer £360m.
Newington also criticised the level of scrutiny on its investment in Foxtons, which has faced accusations of improper practices, while its US arm, not owned by BC Partners, went in Chapter 11 bankruptcy last year. Newington said that Foxtons represents just 1% of the firm’s committed capital.
However, BC Partners also said that its Swedish luxury boat fittings portfolio company Dometic is set to breach its banking covenants and talks with banks are to start soon.
In the past, BC Partners has also had to write off its investment in US-based auto parts supplier Mark IV, a 2000 deal in which the firm allied with co-investors including Ontario Teachers’ Pension Plan in a US$2bn acquisition.
Last July, UK BC Partners and Electra entered negotiations with banks regarding their co-investment Baxi, a UK boiler marker. More specifically, terms on its US$702m senior debt in order to avoid defaulting on payments. Electra partnered with Candover to buy Baxi in 2000 for an undisclosed sum, before BC Partners bought out Candover’s stake in 2004 as part of a £662.5m refinancing.
Even so, the BC Partners fund from which the Mark IV and Baxi investments were made had an overall internal rate of return of more than 26% earlier this year, which is likely to have mitigated any losses on writing off the business.
BC European Capital VIII, the 2005-vintage €5.5bn from which the Foxtons and Dometic investments were made, has a current IRR of 11.91%, according to CalSTRS, which agreed to commit US$675m. The IRR is relatively low but this is largely due to the fund still being in the early part of its investment cycle.
BC Partners’ other investments from BC European Capital VIII include Turkish supermarket chain Migros; satellite services business Intelsat; business and information provider Bureau van Dijk; German chemicals group Brenntag; French and Italian care homes company Medica; Greek casino operator Regency Entertainment; UK gym chain Fitness First; and travel business Amadeus.
Investments that are most likely from earlier funds but not yet exited include French frozen food distributor Picard; UK heating products business Baxi; Italian yellow pages Seat Pagine Gialle; and German cable company Unitymedia.
In addition, BC Partners announced significant shifts in its management. The firm’s chairman Jens Reidel, a sixteen-year veteran of the firm, announced yesterday that he is retiring from his position with immediate effect, to be succeeded by Geneva-based managing partner Francesco Loredan and New York-based managing partner Raymond Svider.
Going in the opposite direction, Jonathon Hosgood, a debt specialist at Barclays Capital, joins BC Partners next month in order to pursue debt opportunities. Newington told a press briefing that the firm would principally explore opportunities to buy debt in its own portfolio, but would also consider debt layered into other companies. Charlie Bott, formerly at Goldman Sachs, is also joining as managing partner and co-head of investor relations.
This post originally appeared at Thomson Merger News