as·si·du·i·ty

On 17-Oct-02 CVC Capital Partners (‘CVC’) acquired Laurus NV’s (‘Laurus’) troubled Spanish supermarket subsidiary Grupo El Arbol Distribucion y Supermercados S.A. (‘El Arbol’). The Laurus 2002 annual report provides some insight into the transaction. El Arbol had €401m in total borrowings (including inter-company funding) at 31-Dec-01 and saw an additional €47m in cash outflow from operations in the year to 17-Oct-02 resulting in estimated total borrowings of €448m.

This is pretty close to what the company estimated it would have lost had it chosen to liquidate the company (€455m according to leaked company memos).

The deal with CVC required Laurus to: (i) convert €176m in inter-company loans into equity; (ii) inject €40m in additional capital; (iii) provide €28m in senior secures loans, and (iv) provide €30m in subordinated convertible loans (convertible at the option of CVC).

Deducting from the €448m in total borrowings pre-restructuring: the €176m in converted inter-company loans, the €40m capital injection and the €30m in subordinated convertible loans results in approximately €202m in borrowings at El Arbol. Laurus then transferred the shares to CVC for a nominal amount. According to CVC the transaction valued El Arbol at US$181m/€186m. The €16m (€202m minus €186m) delta  could be explained by the – undisclosed – cash balance at El Arbol.

This implied the following mutiples: 25.7% of sales for 2002 (€785m), 1.5x book value of assets (€130m at 31-Dec-01). As the company reported a loss before interest tax depreciation and amortization (€15m loss before interest and tax) in both 2001 and 2002 no meaningful earnings multiples could be derived.