BC Partners gets £400m Foxtons deal ‘wrong’

Private equity firm BC Partners took an extraordinary step yesterday by holding a press conference about its 2007 acquisition of struggling London-based estate agent Foxtons.

BC acquired Foxtons for just under £400 million (€448 million; $606 million) just weeks before the credit crunch and the subsequent collapse of the UK housing market.

Since then, Foxtons has been struggling to service debt taken on to finance the deal and BC Partners has endured numerous articles highlighting the problem investment.

In front of the press pack, managing partner Andrew Newington said: “Obviously, we made the wrong call on the market.” He told reporters that London market sales volumes fell between 60 percent and 70 percent rather than the 30 percent scenario it had modelled into the investment. He said the steepness and suddenness of the collapse was impossible to anticipate.

“It’s not been a good story for us,” co-chairman Raymond Svider added, stressing that the equity investment in Foxtons represented only 1 percent of its current buyout fund and is mitigated partially by a contingent vendor loan linked to performance. And, despite defaulting on its covenants late last year, Foxtons remains profitable and continues to gain market share in an extraordinarily difficult housing market, Newington added. It breached its banking covenants, however, late last year.

While it’s unclear how long it will take the UK property market to rebound, BC may yet rescue the business, for instance by injecting fresh equity – a possibility Newington said the firm will consider “in the right circumstances”.  Lenders, Bank of America and Mizuho are engaged in monthly discussions. The agreement of a new capital structure post-first quarter earnings reports is a possibility.

BC Partners invested £50 million of equity out of its €5.9 billion Fund VIII. Asked if LPs resent the amount of time one of its managing partners spends on the deal given its size, Svider said the firm   had a commitment to its portfolio companies’ management teams as well as to investors.