Inside the secret private equity firm behind Asda’s £ 6.8bn buyout
The Coach Makers Arms, an oak-paneled Victorian pub, is owned by a daisy-chained entity leading to Jersey’s offshore secret tax havens and is near the front door near Oxford Street in London. ..
The structure was arranged by private equity fund TDR Capital in 2017, when management decided to purchase a local water fountain across the street.
Today, TDR uses an equally complex model for the largest transactions ever. The acquisition of supermarket chain Asda’s £ 6.8 billion debt from Wal-Mart was cleared earlier this month by the Competitive Markets Authority.
This is the UK’s largest leveraged buyout since KKR acquired Alliance Boots 14 years ago. It puts the future of Asda’s 145,000 employees, and an important part of the country’s food supply, in the hands of little-known investors.
Led by former bankers Mangitdale and Stephen Robertson, TDR was founded under the name Tudordale Robertson with capital from Paul Tudor Jones, a US hedge fund billionaire.
Dale, the dominant person at the company who smokes non-scorching tobacco sticks during the reunion, first worked with Robertson at Bankers Trust in London in 1995, four years before being taken over by Deutsche Bank. Their deal included establishing Punch Tavern in 1998 and selling the chain to Buyout Group TPG the following year.
In 2002, Dale and Robertson, then 37 and 42, attacked alone. A former colleague who moved to Tudor Investment Corporation negotiated the dismissal of his new employer, and Tudor pledged around 155 million euros in the couple’s first fund of 550 million euros.
Over the past 20 years, some things have changed. In particular, it is the amount that investors are willing to offer. TDR’s latest fund, the fourth fund, manages € 3.5 billion. The Jones company is no longer officially involved, but following a handshake deal in the early 2000s, it is entitled to a permanent revenue of € 1 million per year from TDR. Jones and his investment firm declined to comment.
But what is very consistent is that small teams invest large amounts of money and focus on a small number of transactions. Many private equity firms have moved from fragmented groups of negotiators to institutions with levels of control and balance, but TDR is moving closer to older models.
“I hate bureaucracy a lot,” Dale told FT in a rare interview. “As you know, I want you to make the right business decisions with as little fuss as possible, and that’s why we are a central office, a team. That’s all. It is quite compact. If so, you can see all the key figures of what you want to talk about in under 30 minutes. “
The majority of these key people are men. Even by private equity fund industry standards, TDR is male dominated. All 12 partners, with the exception of the Director of Investor Communications, are male and have never had a female business partner. Dale declined to comment.
TDR’s own management is typically the largest group of investors in the fund, accounting for around 10-15%, well above the 5.5% that data firm Preqin said was the average buyout fund. I go. “We have to work on the principle of being essentially a Mangit and Steve family office,” said one person who has worked closely with TDR.
“Eat your own food” is important, said Dale. “I think that’s a good area, and if you are successful you can also be successful over time.”
The emphasis extends to practical due diligence. According to traders, when TDR acquired 332 pubs from Mitchells & Butlers in 2010, its executives visited all the pubs.
Financial engineering in the gymnasium
One element of TDR’s investment approach is rooted in the early days of Bankers Trust, said the same person who worked with Dale and Robertson.
Company records show the company bought the David Lloyd gym chain from the fund in 2013 with £ 190million and £ 528.5million in debt. Since then, TDR has collected over £ 550million in dividends and other repayments, almost three times the initial investment. This was partially paid for by accumulating new debt owed to a company which currently has over £ 1billion in debt.
Peter Morris, Associate Researcher at Saïd Business School, University of Oxford, said: “Meaning David Lloyd was more vulnerable than he needed when the pandemic hit . ”
During the blockade, Jim Group used the UK government’s temporary compensation program and the German government’s Covid-19 aid program.
Dale said the gym chain has weathered a pandemic “better than most of its competitors” and “recently a very successful refinance with relaxed restrictions and significant oversubscription.”
TDR said this month it would “inject £ 100million into the business” as part of its £ 350million “investment”, which is also covered by debt. “Provision in Kind” Notes from External Investors. A form of loan in which the borrower can defer interest and repay with additional debt.
TDR is aware of the problem, saying it has already recouped more than € 250 million from its initial investment in EG Group, a highly leveraged gas station company owned by co-founders Morsin and Zuber Issa. The two said.
The deal again paved the way for the acquisition of Asda with Isas. The supermarket group is worth £ 6.8bn, but TDR and Issas have raised their own funds of just £ 780m, with the remainder coming from the sale of some of Asda’s assets and the increase in their indebtedness. I go. And £ 780million, or just 11.5% of the deal price, comes from withdrawing money from the EG Group, at least in part.
In addition to pubs, gyms and gas stations, TDR has invested in discounted retail and cruise ships in the area damaged by the pandemic. This year, it agreed to acquire debt collector Arrow Global and generator supplier Aggreko.
“It’s an Old World wallet just like most of the UK economy is an Old World economy,” Dale said. “In fact, our conviction, which is the subject of many of our investments, is that there is no reason why the incumbent operators should not innovate, apart from their own structure and their lack of vision. Both can be injected, modified and capitalized. ”
TDR has yet to bankrupt its holding company, but in 2017 it was caught in a fierce battle with bondholders over the future of Algeco, a modular space rental company that it has held since 2004. A valuable US subsidiary in its hands if it is resolved later.
By September 2020, third-party fund companies holding EG Group shares will have a net internal rate of return of 34.1%, which private equity funds will use to calculate their annual performance, according to data released by the investors. I did it. The Oregon Public Service Retirement Fund sits comfortably in the top quarter of the buyout group.
However, according to a presentation shared with investors, the net internal rate of return of the second fund raised in 2007 was only 6.9% in September 2020.
“This fund is an almost mediocre definition,” said a private fund specialist. “It’s not about investing in private equity so that people get it.
Aljeco’s performance was a drag, but Dale said it was “a comfortable second quartile fund in terms of multiples of money paid back.”
The details of how to pay a private equity executive are usually difficult to follow. However, TDR Capital LLP’s accounting provided some clarification. Since its inception, Morris Companies House Records has paid out £ 293.9million to its members (mostly TDR executives) and earned £ 526.8million.
Payroll equivalent payments do not include deferral interest. This is the mechanism by which managers of private equity funds typically receive 20% of their profits.
“The payout is a lottery paid out of profits, not contractually guaranteed, and is dependent on the continued performance of the partnership and its members,” said Dale.
TDR investors include large US pension funds such as the Pennsylvania Employee Retirement Program and the Norinchukin Bank of Japan, but also a cohort of “family and friends” who pay lower administrative fees. There is.
They include Paul Tudor Jones of David Ross, co-founder of Carphone Warehouse, who chaired TDR-owned PizzaExpress, and Stephen Short, partner at law firm Simpson Thacher & Bartlett, who advised TDR. “We have a lot [investors]And that’s more important than me there, ”Short told FT.
Some of TDR’s traders have personally bought shares in companies that do not involve buyout companies. Some of them are starting a new company called Silver Birch to support a group of former employees of Greensil Capital, a supply chain finance group that collapsed in this year’s financial and political scandal.
Dale has invested in Flight Club, a chain of darts-themed bars, and The Double Red Duke, a 16th-century hotel near his home in the Cotswolds.
But all the companies to date are below the multibillion pound deal with the world’s largest retailers. And Asda’s overhaul could put TDR in the spotlight.
“Buyouts of large, retail-oriented companies inevitably get a lot of attention,” Morris said. “Once TDR gets involved with Asda, it can be difficult for them to stay under the radar.”
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