Investment Trust Insider: As LBOs return Oakley is the pick of pre-crash PE

The past five years have not been an easy time to be a private equity investor. Investments made at the tail end of the credit boom, while often cushioned to some extent by covenant-lite debt, have often struggled and many did not survive in the long term.

One company’s five-year performance stands out however: Oakley Capital, whose net asset value (NAV) is up over 80% over the past five years, while the likes of 3i , Candover and SVG more than halved.

It is true that Oakley’s recent returns have been a bit dull by comparison to the rest of the sector (NAV up circa 5% over the past year) but this might be because the others are writing back up the investments they wrote down a few years ago.

Oakley started life in August 2007, raising £100 million to invest in a limited partnership (LP) vehicle with a 10-year life (this can be extended to facilitate disposals) managed by a team led by Peter Dubens. He had built up a formidable track record, with 365 (sold to BSkyB) and Pipex (sold, just after the fund launched, to Tiscali).

Cash pile

By the end of December 2007, very little of the LP had been invested and perhaps this was a saving grace. Oakley was sitting on a cash pile as valuations of its target investments were deteriorating.

The first big deal was struck in March 2008 with the acquisition of Freedom4’s (formerly known as Pipex) European hosting and network services business for £128 million.

Oakley renamed this business Host Europe. Oakley’s discount widened as the private equity sector fell out of favour but it took advantage of the situation to buy back some shares.

Then in March 2009, Oakley raised £18 million to take advantage of cheap valuations by issuing new shares at the prevailing market price. This was quite dilutive for existing investors so it was regrettable that the deal was structured as a placing.

The LP then made its first disposal, selling part of Host Europe back to Freedom4 for £42 million, booking a decent profit and getting cash and a stake in Daisy Group, an AIM-listed telecom services company. The share price began to recover and quickly hit the £1 mark again.