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Ring My Bell

Friday, 25 August 2006

Mike Fahy speaks to John Caudwell about the £1.5 billion sale of his mobile phone empire to a pair of private equity houses

John Caudwell, the larger-than-life entrepreneur from Stoke-on-Trent, has sold the mobile phone group he founded in 1987 to private equity houses Providence and Doughty Hanson for approximately £1.46 billion.
Caudwell, who had previously sold his customer billing group Singlepoint to Vodafone in 2003 for £405 million, eventually split his empire in order to achieve a higher value, with Providence taking over the Phones4U retail empire (which last year achieved profits of over £150 million on sales of £2 billion) for more than £1.1 billion. Doughty Hanson picked up the 20/20 Mobile handset distribution business – the UK’s market leader – for £347 million. Caudwell had also earlier offloaded his fixed line business to Pipex for £40 million.
Andrew Thomas of merchant bank NM Rothschild was appointed to handle the sale process last September. He says that the plan had initially involved selling the group as a complete unit. However, the number of private equity buyers able to stump up for a group of this size had not been huge, and eventually it was realised that Caudwell would achieve a higher value by splitting the businesses.
Caudwell told EN that he’d ruled out a trade buyer from the outset. A sale to one of the four networks or a rival like Carphone Warehouse would not only have led to the deal being called in by the competition authorities, but it would have been likely to involve the sale or closure of large numbers of Phones4U stores.
“I made it clear from the outset that it had to be a private equity buyer,” he said. “I’ve spent 20 years growing this business and creating an awful lot of jobs, and the last thing I wanted to see was a trade buyer come in and make lots of people redundant. I think this is a deal which will protect lots of these jobs.”
A deal was initially done with venture capitalist Bain and Doughty Hanson buying the business, but the former “didn’t deliver what it was promising”, according to Thomas, and it was replaced by Providence, which is a US-based telecoms specialist.
Thomas says the quality of the buyers attracted to the business is an indication of its strength. Halfway through the process, the business delivered stronger-than-expected figures, boosted by its thriving overseas businesses in Europe and the Middle East.
However, the fact that this was an all-cash deal – with Caudwell (who owned 85 per cent of the group) and his finance director Craig Bennett (who owned five per cent) both exiting the business – meant that potential buyers scrutinised the business carefully.
“It probably added another layer of complication,” admits Thomas. “Buyers always find it more difficult when the senior people are going, and it leads to more questions about their motives.”
For his part, Caudwell says that he simply wanted to do other things. "It was the right time to sell. I've got a couple of unfulfilled ambitions outside of the business and if I left it any longer it might be another 15-20 years before I got the chance to do any of them."
Alongside Thomas, Caudwell was advised by Eversheds’ corporate partner Danny Hall. "From our point of view, it marks the successful completion of a lot of hard work,” says Hall. “We've been working with Caudwell for some years now and this sale is testament to the scale and complexity of work Eversheds is now doing."