Private equity valuations are all about volatility not reality
WITH fortunes won and now fortunes lost on it, CarTrawler looks like the embodiment of the volatility of the private equity market over the last decade. It is a cautionary tale for investors, but not all bad news for the business.
Founders Niall and Greg Tully and their early backers reaped genuine fortunes when they sold a majority stake in the online car hire platform back in 2011. The brothers took a reported €90m off the table when they sold most of their stake to British private equity house ECI but stuck around to help run a company whose roots were in the family’s Argus Car Hire.
Three years later, ECI made a whopping six times return on its investment, selling the business to new private equity owners BC Partners and Insight Ventures.
By 2017 those new owners were eyeing a near-€700m sale of their own, as the underlying business went from strength to strength, rolling out partnerships with travel businesses such as airline Emirates and online travel agent Hotels.com to link their customers with car hire and other transport options.
The sale in 2017 didn’t happen, leaving BC Partners and Insight at the helm this year when the Covid-19 crisis struck, devastating revenue across the travel sector and forcing all kinds of tourism and travel-related companies to fall back on cash reserves.
CarTrawler is a proven business with world-class technology and global relevance but it also had the wrong balance sheet, including around €140m of bank debt and a big requirement for cash to meet the costs of riding out the crisis.
The good news for the business is that new owner TowerBrook had that cash. The bad news for incumbent investors is that TowerBrook realised the value of having cash in a crisis and has dictated horrific exit terms for both the outgoing owners and lenders.
The good news is that the balance sheet, not the business, is taking the hammering.
A lower valuation with less debt puts CarTrawler in a better, not a worse, position to bounce back.