Xtreme embarrassment as VSS private equity owners sell to Ebiquity at a £15m loss
Having invested £30 million in the UK based advertising monitoring business Xtreme Information Services, only to see it run up losses of over £23 million in eight years, US private equity house Veronis Suhler Stevenson (VSS) has now agreed to sell its near 92% stake to AIM listed Ebiquity in return for a minority shareholding in that company.
Virtually no cash will pass on completion of the deal, but it will leave VSS nursing an embarrassingly heavy loss of about £15 million on its Xtreme investment. Presumably it hopes to see some upside from its stake in Ebiquity.
The deal may provide VSS managed funds with some more cash in due course. Under the terms, part of the £17.9 million purchase price will be in convertible loan notes worth a little less than £7 million. But if the loan notes are not redeemed in cash by the conversion date, they will be replaced by an increased shareholding in Ebiquity that is not expected to exceed 42%.
The initial share component of the deal will give the VSS funds 27.7% of Ebiquity. Xtreme’s chief executive John Gordon will also receive a more modest 2.2% shareholding in Ebiquity in exchange for his current holding in Xtreme.
Last year Xtreme still owed VSS about £5 million that had been lent to the company. It is not clear whether the loan has been repaid since or whether Ebiquity is also taking over that liability. In any event, Ebiquity has arranged a new £12 million borrowing facility with Bank of Ireland.
The attraction of the deal to Ebiquity is fairly obvious. Xtreme will add to its critical mass both in the UK and overseas without any initial cash outlay beyond about £800,000, unless it has also agreed to pay off the £5 million VSS loan. Operational cost savings may also be available. In addition, Ebiquity will be released from the burden of having to amortise the over-valued price paid by VSS for Xtreme in the first place. But the jury will remain out on what scale of profit Mike Greenlees and Nick Manning can squeeze out of their new plaything, although the stock market gave the deal an immediate ”thumbs up” with a 24% jump in Ebiquity’s share price.
Ebiquity is also acquiring the remaining 50% of the shares in its German monitoring joint venture Thomson Media Control for £0.8 million.
Xtreme is not the only investment by VSS in a UK marketing business. In 2007 it invested a reported £12 million in design consultancy Loewy Group.
© Fintellect Ltd