April 25, 2010 7:19 pm

Horizon has other deal options in its sights

Hugh Osmond has not wasted much time in putting his money to work. Only two months after floating his acquisition vehicle Horizon, the first potential target – struggling housebuilder Crest Nicholson – has already been the subject of an approach.

However, Horizon is still evaluating four or five other possible deals that could yet prove more tempting for the life assurance and leisure industry entrepreneur.

Mr Osmond’s entrepreneurial history spans several sectors. With fellow entrepreneur Luke Johnson, the former chairman of Channel 4, he engineered the reverse takeover that led to the 1993 flotation of the Pizza Express restaurant chain, and sold his remaining stake in the group in 2002 for £7.3m.

In 1997, he and Roger Myers, who founded Café Rouge, purchased the tenanted pub estate of brewing group Bass, paying £564m for 1,428 pubs, thus creating Punch Taverns. Punch subsequently acquired Allied Domecq’s pub estate in 1999 and then floated in 2002. Punch’s shares now trade at less than a third of their listing price, held back by the group’s heavy debt burden.

Mr Osmond then turned his attention to struggling financial services groups. He set about consolidating the UK’s “zombie” life assurance funds that had closed their doors to new policyholders under the banner of Pearl Group. In this pursuit, Mr Osmond was a rival of Clive Cowdery and his Resolution group, which was also seeking to consolidate closed life assurance funds, and in 2005, Resolution attempted to thwart Mr Osmond’s £1bn bid for the closed funds of HHG. In 2007, Pearl turned the tables and acquired a 16 per cent stake in Resolution, imperilling Mr Cowdery’s £8.6bn merger of his vehicle with Friends Provident.

Mr Osmond is now focusing on companies lumbering under unsustainable debt burdens. In February his new Horizon vehicle floated on the London Stock Exchange, raising £418m, less than the £500m he had hoped.

Unlike Pearl, which sought to consolidate large numbers of life assurers, Horizon is aiming only at acquiring a single company, with an enterprise value of up to about £3bn. Crest Nicholson would come in well below that, with an enterprise value of £1bn, but it is believed that Horizon plans to stop once it has made its one acquisition.

The group’s targets are almost exclusively unlisted, private-equity owned companies, that have sound underlying business models but stretched balance sheets. They are in a broad range of sectors, although the group is keen to avoid companies with a narrow revenue stream dependent on only a few large contracts. Horizon is not considering companies in financial services, property or heavy industry.

The key contenders for Horizon’s purchase will be the banks, which control many of the most heavily indebted companies. A deal with Mr Osmond could offer a double whammy of benefits, improving the security of their lending and allowing them to release the ever higher amounts of their own capital that they must hold against loans to heavily indebted companies.

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