About Electra Private Equity PLC
Electra Private Equity PLC was a private equity investment trust listed on the Main Market of the London Stock Exchange from 1976. Following the successful implementation of a realisation strategy, the Company ceased being an investment trust and was renamed Unbound Group plc prior to Admission to AIM as the holding company for its final private equity investment, Hotter Shoes, on 1 February 2022.
During its realisation phase from 2016, Electra returned over £2.1 billion to shareholders by early 2019, from a starting market capitalisation of £1.1 billion.
From early 2019, Electra focussed in turning around and realising shareholder value for its final corporate investments. This resulted in the demerger of Hostmore PLC in November 2021 and the subsequent transformation of Electra into Unbound in January 2022.
The last day of dealings in Electra shares on the Main Market was on 28 January 2022, and the first day of dealings in Electra shares (to be re-named Unbound shares accordingly) on AIM was 1 February 2022.
founded in 1935
Electra Investment Trust PLC
Originally formed in 1935 as Cables Investment Trust Limited, the Company was listed on the Main Market of the London Stock Exchange as an investment trust in 1975 and renamed Electra Investment Trust PLC.
Electra Private Equity PLC, and Electra Partners LLP
In 2006, its name was changed to Electra Private Equity PLC, and Electra Partners LLP (now Epiris), an independent private equity fund manager, was appointed to manage the Company’s assets and investments.
Electra’s objective was to achieve a return on equity of between 10% and 15% per year over the long term by investing in a portfolio of private equity assets. The investment portfolio consisted of direct unlisted investments, secondaries, funds and listed companies. The investment focus was principally on Western Europe, with the majority of investments made in the UK.
Activist Investor Appointed
In November 2015, activist investor Edward Bramson was appointed to the Board as a Non-Executive Director after building up a 30% stake with his investment vehicle, Sherborne Investors Management LP.
The activist arguments were focused on:
- Assets were undervalued
- The balance of control between Board and external manager was wrong
The balance of reward between shareholders and external manager was wrong
Company’s investment strategy, policy and structure review
In January 2016 the Board of Electra announced that it was reviewing the Company’s investment strategy and policy and its structure. The review was the first such fundamental review of the business that had been conducted for 10 Years.
Strategic Review Phase 1
In May 2016, Neil Johnson was appointed Chairman and the Board provided an interim update on the strategic review in which it announced that it had decided to establish an executive function and served twelve months’ notice of termination of the contracts under which management of its operations and investments was outsourced to Epiris. Edward Bramson was appointed interim Chief Executive Officer.
In October 2016, the Board announced the outcome of the first phase of the review, including its intention to internalise all management functions and to consider migrating the Company from an investment trust structure to a “corporate” structure, and its intention to commence the second phase of the review in June 2017.
The third-party management contract was terminated in May 2017, and all investment portfolio and operational responsibilities became the responsibility of the Company’s newly formed executive team, led by Chairman Neil Johnson and Gavin Manson, who had been appointed to the new role of Chief Financial Officer in July 2016.
Strategic Review Phase 2
Commencing in June 2017, the second phase comprised an evaluation of the investment portfolio, the corporate structure and the capital allocation policy of the Company. The findings of this process were announced in October 2017.
The Board considered market conditions at the time to be unsuitable for new investments and in prioritising existing corporate investments, the Company expected to make further non-core realisations. The strategic review also confirmed the Board’s view that a listed closed-ended fund structure was not optimal for private equity investment and set out a timetable for migration to a new corporate structure.
Strategic Review Phase 3
In May 2018, Electra commenced the third and final stage of its strategic review, the outcome of which was announced in October 2018.
The Board announced that it considered that each of the remaining corporate investments represented an opportunity for value creation within an acceptable timeframe but had decided that the concentration of the portfolio and the structural inefficiency in reinvesting in a listed private equity vehicle with a significant market discount to NAV made it inappropriate to seek to do this within the existing investment objective and policy of the Company.
The Board therefore concluded, and recommended, that it was in the best interests of shareholders to begin a realisation strategy, conducting a managed wind-down of the portfolio over a period of time, allowing optimisation of returns, the return of cash to shareholders and ultimately, the winding up of the Company.
The Board also concluded that, given the well documented challenges in both the UK retail and casual dining sectors, it was not appropriate to sell the two remaining larger assets TGI Fridays and Hotter Shoes at this time. These assets represented nearly 90% of the remaining portfolio, after disposals already announced, and were fully controlled. Despite the impact of short-term trading conditions on current valuation, the Board was confident that both assets offered good opportunity for growth and could provide strong exits in an acceptable timeframe.
The Investment Policy – Crystallising Value for Shareholders
At the General Meeting held on 30 October 2018, shareholders approved a change of the investment objective and policy to the following:
- Electra’s investment objective is to follow a realisation strategy, which aims to crystallise value for shareholders, through balancing the timing of returning cash to shareholders with maximisation of value. The Company will not make any new investments but will continue to support its existing investments to the extent required in order to optimise returns.
- The Company will retain sufficient cash to meet its obligations and to support its portfolio assets, with cash from realisations being invested in AAA-rated money market funds, pending utilisation or return to shareholders.
- Should it be appropriate to utilise gearing in order to optimise the balance between timing of returning cash to shareholders and maximisation of value, the Company will maintain gearing below 40% of its total assets.
Recovery & Strategic Development
By the beginning of 2019, Electra’s portfolio of 20 significant investments had been reduced to four – TGI Fridays, Hotter Shoes, Special Product Company and Sentinel Performance Solutions.
£2.1bn had been returned to shareholders – representing a doubling of the £1.1 billion market capitalisation of the Company in late 2015. The market capitalisation in early 2019 of £145m reflected the extent to which the final four investments required significant turnaround activity.
The Company focused on managing the recovery and strategic development of TGI Fridays and Hotter Shoes, and the continued growth of its smaller controlled investment, Special Product Company, towards acceptable exits balancing value and timing, and continued to seek optimised exits from the remaining non-core portfolio and remaining non-controlled investment, Sentinel Performance Solutions.
The turnaround of these final four investments was planned and executed by Neil Johnson and Gavin Manson, who recruited new, stronger management teams in each respective portfolio company and developed credible plans.
The two smaller businesses sold in 2018 (Special Product Company) and 2021 (Sentinel Performance Solutions) for 4.5x and 3.5x their 2018 value.
The remaining two investments, TGI Fridays and Hotter Shoes, as consumer businesses, were severely impacted by the Covid-19 pandemic. However, both were transformed by their new management teams during the pandemic.
The transformed core businesses, combined with credible strategies for further growth, left these two businesses ‘too good to sell’ at this time. Plans were implemented to leave Electra shareholders owning both businesses – but within a more efficient ownership structure that gave opportunity to realise future value.
Hostmore PLC Demerger
On 2 November 2021, TGI Fridays demerged as Hostmore PLC, a growing hospitality business focused on American-themed casual dining brand, 'Fridays', and the cocktail-led bar and restaurant brand, '63rd+1st', onto the Main Market.
Its management team, led by Robert B. Cook as CEO and Alan Clark as CFO, has a successful track record of building and leading businesses in the hospitality and leisure sectors. The management team led a successful transformation of Fridays in 2020, refocusing the brand on quality, relevance and simplification. The new brand ‘63rd+1st’ was subsequently launched in 2021.
Hostmore continues to explore opportunities with TGI Friday's, Inc, the franchisor of Fridays, to expand its existing brands into new franchise territories and is seeking to add rapidly growing, early-stage businesses to its portfolio of complementary hospitality brands, as well as to extend its offering in other experience-led, leisure concepts.
Electra’s Transition to Unbound Group plc
The demerger of Hostmore PLC left Hotter Shoes as Electra’s final remaining investment.
On 30 December 2021, the Board gained shareholder approval to transition Electra from the FTSE Main Market to AIM, renamed as Unbound Group plc, the parent company for Hotter Shoes and online multi-brand retail platform supporting the lifestyles of the 55+ age demographic.
Unbound will build on the solid foundation of its current main business, Hotter Shoes, to grow value through its curated multi-brand retail platform supporting the active lifestyles of the 55+ age demographic with a range of products and services. Unbound's expanded offering beyond footwear is expected to feature apparel, wellness and lifestyle products and services, with third-party complementary brands featuring alongside new Unbound brands, as well as Hotter.
The last day of dealings in Electra shares on the Main Market was on 28 January 2022, and the first day of dealings in Electra shares (to be re-named Unbound shares accordingly) on AIM was 31 January 2022.