Zenith is the largest independent vehicle leasing business in the UK. It was formed in March 2014 through the merger of Zenith Vehicle Contracts and the Leasedrive Group.
Headquartered in Leeds, with full-service operations in both Solihull and Wokingham, the combined group has over 500 employees and provides end-to-end automotive solutions focused on: contract hire; salary sacrifice; short-term hire; and fleet management services to customers across the UK. The company operates a fleet of over 85,000 vehicles and focuses on serving blue-chip customers, principally as sole supplier.
WHY DID WE INVEST?
Zenith has strong core profitability aligned with double-digit revenue growth and high cash flow conversion. It offers a business-essential service to a largely fragmented customer base, with a high customer retention rate. In addition to growing its core contract hire fleet, we believe substantial growth can be achieved in the emerging salary-sacrifice marketplace in the UK. The merger was driven by the highly complementary nature of the two businesses and the potential to create significant economies of scale as a larger group.
HOW DO WE INTEND TO CREATE VALUE?
In addition to supporting core customer growth, there is the opportunity for significant improvement in operating and financing efficiency through the enhanced scale afforded by the merger. This platform should also enable further strategic M&A, where HgCapital’s experience in buy-and-build and the company’s flexible capital structure makes Zenith a compelling acquirer.
WHAT HAS BEEN ACHIEVED?
HgCapital invested in Leasedrive in December 2013 and subsequently completed a further investment in Zenith in February 2014. Zenith and Leasedrive immediately began operating as a single entity. The integration of the two companies has gone well with significant synergies realised.
In April 2015, Zenith was refinanced on the back of its strong trading performance, returning c. 45% of the original investment made to clients. Following this, in June 2015, Zenith agreed a new securitisation facility with improved terms.
HgCapital continues to support management to drive the value of the investment, through potential bolt-on acquisition opportunities and by improving operational and financial efficiency.
HOW IS IT PERFORMING?
The integration of Zenith and Leasedrive is now complete and has delivered synergies in line with expectations. The combined business has continued to see strong double-digit revenue and EBITDA growth in 2016 and the contracted nature of its business model means a significant proportion of future growth is already underpinned by existing customer contracts.
The significant uplift of £11 million in the Company’s valuation of its stake in Zenith reflected the continued strong trading performance over the year.
HOW WILL WE CRYSTALLISE VALUE?
In January 2017, we announced the sale of Zenith to Bridgepoint in a transaction totalling £750 million. The sale of Zenith delivers a 2.9x investment multiple and a 46% gross IRR over the investment period.
On completion, expected in March 2017, this transaction is estimated to result in an uplift of 22% over the carrying value to 31 December 2016, adding 30 pence per share to the NAV.