Sports car aficionados will readily testify to the fact that the £479 million (€690 million; $997 million) buyout of Aston Martin in March 2007 was not just the acquisition of a company, but a legend. “For the investors it meant getting involved with a global luxury brand, a long racing history and a true work of art,” says Justin Mirro, senior vice president and head of the automotive group at Jefferies & Company, which acted as a financial adviser to the buyers on the deal.
Mirro says that, around the middle of 2006, he and his colleagues had got wind from industrial contacts that Ford was looking to sell its iconic subsidiary. Prodrive, an Apax Partners-backed UK car technology firm headed by motor racing entrepreneur David Richards, was identified by Jefferies as a good fit. According to Mirro, Richards initially thought buying Aston Martin “the most ridiculous idea in the world”.
Richards was not alone in thinking that Aston Martin would find it hard to survive without access to Ford's deep pockets. “We needed a deal that included over-funded equity and low leverage to give the business breathing room,” says Mirro.
Identifying investors keen to commit the large amounts of equity this approach implied was no easy task. Some 40 interested parties were pitched to before Mirro and colleagues finally found their backers in cash-rich Kuwait in the form of local investment groups Investment Dar and Adeem Investment.
In addition, it's worth noting that the umbilical cord linking Aston Martin to Ford was not entirely severed. Ford retained a small minority interest in the form of preferred equity and a deal was struck to ensure that supply agreements would remain in place under the new ownership.
Having secured the equity component, the next challenge was to put in place an appropriate debt structure. In this case, it meant meeting the requirements in the two investment houses' articles of association that any deal they enter into should be structured in a Shariah-compliant manner. The end result of this was the first leveraged buyout in the UK to be financed specifically in accordance with Islamic principles.
LIQUIDITY FROM THE GULF
Harvey Hoogakker, a director in the capital markets (diversified industries) team at WestLB, which was lead debt arranger and underwriter to the deal, says the UK has become an encouraging environment for such financing to be put in place.
“There is an emerging framework of legislation in the UK which has been developed by the Treasury and FSA, and which has already facilitated the use of Islamic finance,” he says. “Further initiatives continue to encourage even broader use of Shariah products.” The basis of the finance, Hoogakker adds, was a commodity muharaba, a fairly commonly used Shariah-compliant product.
The structure comprised an acquisition finance package together with a revolving credit facility for working capital requirements post-transaction. The acquisition finance tranche was structured on a bullet repayment basis with an eight-year maturity. Hoogakker says that, because Gulf investors are accustomed to five-year maturities, they have been granted a put option at the end of year five that allows them to stay in or exit at that point.
The net debt of the company, at about £200 million, is a conservative multiple of 4 times 2006 EBITDA. “Consumer branded businesses are typically leveraged at twice that,” says Mirro.
Bahrain Islamic Bank, European Islamic Investment Bank, Standard Bank and Lloyds TSB were invited in as lead mandated arrangers by West LB at the primary syndication stage. Hoogakker says the debt is currently proceeding through general syndication, which is expected to complete by the end of the year.
Hoogakker says many Gulf investors are seeking to diversify away from exposure to local markets dominated by the oil and gas industry towards other sectors and geographies. “We may expect to see further similar Islamic-financed buyouts in the West,” he suggests.
Meantime, Mirro says Aston Martin is moving up through the gears of its new business plan. He says that, since the deal was agreed, developments have included: a cost reduction programme; a new labour agreement in the UK; new dealerships in Russia, China and the Middle East; and the introduction of new models.
Last but not least, Mirro points out, Aston Martin took the chequered flag in the GT1 class at this year's Le Mans – the first time it had triumphed in the historic race since 1959. All connected with the buyout will be hoping it's a good omen.