1998: Cendant Corp buy for £810m
2002: Cinven buy for £820m
2005: 3i buy for £555m
2007: Macquarie buy for £790m
Cumulative unadjusted "headline" capital gain, 1998 to 2007 = £(20)m
Cumulative adjusted gains (estimate, see text), 1998 to 2007 = £745m
When Cendant bought NCP plc's car parks for £810m in 1998 they were not expecting to become forced sellers 4 years later. But accounting scandals and class action lawsuits don't come cheap. Fortunately (for them), they had in the interim stripped out the car recovery service Green Flag from NCP netting £250m; and in 2002 the auction of the rump was offloaded to private equity group Cinven for £820m.
Cinven then did some serious financial engineering and business development. They sold and leased back £600m of NCP property; they pushed into managing local authority car parks; and they refinanced circa £100m of debt in order to withdraw their own equity, originally worth £140m. NCP turned over £165m in 1997. By the time Cinven sold it had nearly tripled. In all they made £280m on their stake when they sold to 3i in 2005 for £555m.
In the 18 months 3i have owned NCP they have, well, installed a new finance director, bought some IT gear and, umm, well that’s about it. They did, however, have the advantage of having beaten Macquarie to the deal in 2005 and knew the Australians were still tumescent at the prospect of owning car parks. Desire clouds judgement and Macquarie have now forked over £790m for essentially the same business they would not cough up much less for 18 months earlier.
Macquarie’s European Infrastructure Fund II (MEIF II), which is the vehicle buying NCP, was established only last May. It is a multi billion euro fund, and is hoping to raise more in Q2 this year. It is in buy mode – and with little choice in the matter: it failed in February to get hold of German metering company Techem for what would have been €1.4b. What chance fund raising if the boys don’t spend?
Macquarie may have faith in the NCP cash flows; they may also, though it would be remarkable, have seen flab and financial engineering opportunities that were missed by Cinven and 3i. But the truth is that there is not much major tinkering required at NCP: previous owners have cleaned house to the tune of £745m - and 30% of that was 3i banking asset inflation.
The inescapable conclusion is that in a loose monetary environment MEIF II had no choice but to deal, pay above the odds and close its eyes to the risks (including strike action from union chiefs describing the profits from the 3i sale as "obscene"). 3i handed them the bag and now Macquarie must hope that asset inflation continues long enough for them to hand it on in turn.
This was a trade, not an investment - and it does not look a too clever one at the moment.