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Executive Report: HSS’ premium price Catherine Stratton considers the astonishing £310m paid for HSS by investors led by Archie Norman, generally credited as the man who turned around ASDA. The first half of June has seen much chatter amongst the tool hire community about mergers and acquisitions, both real and rumoured, but the decibels were probably highest as we all absorbed the price which 3i has secured for its holding in HSS. The £310m price tag attached to HSS by Archie Norman’s Aurigo, in consortium with hedge fund Och-Ziff Capital Management, gives Europe’s leading private equity company a return of more than four times money multiple on its investment which originated in the £143m MBI in January 2004. Alan Peterson, who became Chairman of HSS at the time of the MBI, commented that the sale was indicative of the improvements that the private equity model can achieve. In the last calendar year the company reported EBITDA of £40m, 30% higher than when 3i initially invested; it also moved back into profits at the pre-tax level, recording a positive £2.69m, compared with a £10m loss in 2005. The deal itself is a massive surprise. Last year there had been whispers that 3i was looking to sell, but then Chris Davies replaced Paul Nolan as HSS Chief Executive in August and the Group’s investment facilities were increased this February. Indeed a press statement from 3i states that it has been “hugely impressed” by the work of Chris Davies and his team; it goes on to say that it had not planned to sell at this stage but “with the business well ahead of its milestones, and strategically attractive to others, the board of HSS and 3i decided that Aurigo’s offer provided the right solution for both the HSS shareholders and the business.” Price aside, what is impressive about this deal is the pedigree of the new investors. Archie Norman made his name when he achieved the turnaround of ASDA in the 1990s, saving the supermarket chain from collapse and then selling it to Walmart for £6 billion. Since then he has turned around Energis and subsequently sold on the telecoms group to Cable & Wireless. Aurigo was set up last year as his investment vehicle and HSS is its first deal. There had been some comment in the City of late because Aurigo had appeared to be finding it difficult to close deals (the company had tried and failed to buy the Esporta fitness group and Phones4U). Aurigo’s stake in HSS is 70%, while Och-Ziff has 15%, as does the HSS management. Some press reports indicate that Archie Norman approached Och-Ziff after it tried to buy Brandon last year. Och-Ziff is described as one of the largest hedge funds with over $27 billion of assets under management, some 20% of which is invested in private companies. Its previous deals in the UK include the provision of part of the debt to finance Malcolm Glazer’s purchase of Manchester United in 2005. As a result of the deal, Archie Norman takes over the chairmanship of HSS, which he describes as having “great potential.” Initial indications are that HSS will continue to pursue its strategy of moving away from one-off hires towards the provision of facilities management services and, in line with that, will be the on-going move away from the high street to bigger depots from which most of the product line will be delivered to the customers’ sites. The new Chairman commented that he looked forward to working with “HSS’ very strong leadership team to support the business on the next phase of its transformation. We see great potential in HSS and the people who work for it.” HSS Chief Executive Chris Davies will continue to implement the strategy for which he has been responsible for the past ten months. He stressed that it meant the continuation of the company’s business plan with the new investors backing the management team and “driving through the transformation of its business.” This secondary buy-out has been based on the same model as the original 3i deal. The presence of Archie Norman will undoubtedly raise the profile of HSS and that of the tool hire industry as a whole. The City will be watching to see whether HSS can achieve returns that will justify the price he has paid and investors will be comparing that price with the current valuations of the handful of quoted companies involved in tool hire and associated activities. • Executive Hire News › Archives › July 2007 › Executive Report › HSS' premium price
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