Arle Capital Partners’ sale to distressed specialist Newgate Capital Private Equity is the latest twist in the saga of Candover Partners, one of the most high-profile victims of the global financial crisis.
London-headquartered Newgate announced at the end of July it will acquire Arle, which was set up in 2011 to manage CP’s troubled portfolio. The acquisition by Newgate, which specialises in distressed legacy private equity assets, aims to ensure that Arle does not go into liquidation.
Arle managed two legacy funds from Candover: Candover 2005 (€3.5 billion) and Candover 2008 (€2.8 billion, including €1 billion from Candover Investments, CP’s listed parent company). The funds were wound up in March, with the 2008 vehicle, whose sole remaining investment was oil and gas services company Expro, terminated before the end of its 10-year life.
A senior partner from Arle will remain as non-executive director of Expro, while two other accounts staff will remain under contract to provide support in relation to the winding up of the fund entities, David Morton, a partner at Newgate, told sister publication Private Equity International.
Arle’s roughly 200 investors, who are Candover legacy investors that have holdings in Expro, are to roll over into one special purpose vehicle “to facilitate the winding up of the various fund structures, with resulting cost savings for investors,” said Morton.
A troubled timeline
Candover was a high-profile private equity casualty of the 2008 financial crisis, having operated for nearly three decades. In 2008, Candover Investments committed €1 billion to CP’s 2008 fund and took on debt by raising $150 million through high-yield bonds. With the crisis starting to bite, private equity assets being written down by as much as 40 percent and assets becoming harder to sell, the parent company could not meet the €1 billion fund commitment without breaching its bond covenants. It was also forced to give other LPs the option of pulling out of the 2008 fund.
A statement from CP at the time explained that “investor commitments will be scaled back pro rata subject to an appropriate follow-on reserve of €100 million”. With follow-on financing from the Candover 2005 Fund, this would allow Expro, the oil and gas company both funds were invested in, to “take advantage of market opportunities,” PEI reported.
Candover’s portfolio was highly leveraged and the firm struggled to source proprietary deals in the run up to 2008. The firm “lost its soul chasing large and pricey deals in competitive auctions”, Cyrille Chevrillon, a former managing director at the firm, told Bloomberg in 2010.
“The old Candover were what you’d call a light-touch team,” an LP who mulled investing in the 2005 fund told Private Equity International in 2012. “They were financial investors – they’d buy a company, go round the City, get some leverage in there and not do much with it. And because it was a rising market, and they bought good companies, they made a nice business out of it,” the LP added.
In early 2009 some of Candover’s legacy assets succumbed to lenders including Ferretti, an Italian yacht-maker the firm bought from Permira for €1.8 billion in 2006. Gala Coral, a gambling group, was handed to creditors in June 2010.
Candover officially spins out as Arle Capital Partners with John Arney, who had been managing partner at CP, working to dispose the firm’s legacy assets
The portfolio is still in trouble, valued at around 60 percent of its residual cost at the end of June. Arle manages to sell safety equipment maker Capital Safety Group for $1.1 billion in January, generating a 2.7x return
The asset sales continue with Qioptiq, a photonic product manufacturer, sold to Excelitas Technologies. Arle refinances another portfolio company, Hilding Anders International, a bed manufacturer, with KKR investing in a subordinated position in the capital structure with a €350 million investment
Arle helps to wind up the €2.7 billion Candover 2001 fund by co-investing with Electra Private Equity in another legacy asset, Innovia, for €498 million
The firm sells Stork Holdings, an oil and gas maintenance company, for €695 million to Fluor Corporation
KKR buys Arle’s stake in Hilding Anders for an undisclosed sum. Arle proposes to be liquidated and seeks advisory services from Newgate. It sells Innovia for $1.1 billion to Canadian group CCL Industries
Candover Investments announces that Arle will enter solvent liquidation of the 2005 and 2008 funds
Arle disposes of one of the last remaining legacy assets, Parques Reunidos Servicios Centrales, a Spanish entertainment park operator. Arle’s remaining 27 percent stake in the business is distributed among 150 institutional investors and Candover Investments. The latter received about 2.5 percent of the company, according to a trading update.
Arle is acquired by Newgate