Candover forced to hand over 49pc of DX Services

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Troubled private equity firm Candover has been forced to hand over 49pc of its mail delivery business DX Services to the business’ lenders.

By Helia Ebrahimi
Published: 6:45AM BST 13 Apr 2010

It will also have to inject £15m of new cash into DX - which is the UK’s biggest independent mail company - as well as change the management team oversee the company’s turnaround.

Candover, which has been beset with issues since publicly listed Candover Investments - its main investor - withdrew its €1bn commitment, has been working on a deal to restructure the company since April 2009.

Under the new agreement the group’s mezzanine lenders will swap £30m of debt for 49pc of the company’s equity. Private equity group, European Capital will account for half of that, with the remainder divided between Prudential, M&G, AXA and HBOS.

Senior lenders to the mail delivery business - led by Royal Bank of Scotland - will retain the £180m of senior debt.

Petar Cvetkovic and David Hoare, the DX management who led the buy-in, will replace the existing chief executive and chairman respectively.

DX Group was formed as a lawyers’ club to exchange legal documents and was listed in 2004 after it spun-out of the recruitment specialist Hays.

Candover took the company private by for about £350m with around £250m in debt and merged it with its own Secure Mail Services in a £550m-plus deal. However, the company’s strategy to replace the Royal Mail’s secure mail business never fully took off.

In 2009 Candover wrote its value down to zero, along with several other investments, such as gaming group Gala Coral, because its debt had become too large.
Under its lending agreement every quarter the company either had to reduce it’s debt burden or increase its profits. This aggressive “step down” in its covenants meant that last year it struggled to keep within its lending terms.

In the year ending June 2009, the company achieved earnings before interest tax depreciation and amortisation of just under £40m - £5m bellow what lenders were looking for and less than half of what had been projected a year earlier.

Discussions to sell the business where hampered first by Royal Mail’s talks to off load 30pc of itself, and then by the worsening economic outlook.

Blackstone’s restructuring arm, which is understood to have been advising the business, held preliminary talks with TNT, DHL and FedEx.

One source close to the business said: “This has been a difficult deal to get right, but despite giving up nearly half the company, Candover could walk away with a profitable exit by 2013.”