London’s Millennium Dome was one property asset being eyed by the Japanese investment bank
The Principal Finance Group, the London-based venture capital arm of Japanese investment bank Nomura, specialises in buying what it likes to call “orphan assets”: the non-core businesses left languishing after a takeover or a review of corporate strategy, or the headaches that governments seek to privatise.
Typically, these are mature businesses that lack growth potential, but are endowed with stable cashflow, undervalued assets and commited staff.
Since its formation five years ago, the group has been headed up by managing director Guy Hands. He has recently been quoted as targeting 30% to 35% returns on the two or three hand-picked deals it concludes each year. It quotes profits of more than £1bn over its lifetime, but does not disclose asset values or other details. Currently, the PFG owns around 5,000 pubs, 2,500 off-licences, 53,000 homes for UK services personnel and TV rental business Thorn. Together, they have a turnover of over £10bn.
The most high-profile “orphan” was the UK’s Millennium Dome. In July, English Partnerships, the UK government agency handling the sale, accepted a bid of £105m from PPG’s Dome Europe consortium. The intention was to retain the Dome as a visitor attraction and develop an “urban resort” on a neighbouring site.
However, by September the PFG concluded that cashflow was less secure than it had thought, while the legal black hole where contracts and intellectual property rights should have been exposed it to future liabilities. The group pulled out.
Three other investments in its portfolio are property related. Servus is a 200-staff property and facilities management company, set up by the PFG from scratch in 1997 with a view to using it as a vehicle for large property outsourcing contracts.
Earlier this year, in consortium with Jones Lang LaSalle and Grosvenor, Servus Holdings was one of three shortlisted bidders for a £2bn deal to own and manage 750 properties for two of the government’s departments – the Inland Revenue and Customs & Excise. It eventually lost out to George Soros’ Mapeley consortium, but is likely to take a keen interest in any future outsourcing deals.
Criterion Asset Management, originally part of the PFG’s Phoenix Inns acquisition, offers an FM, payroll, credit and supplies service to around 4,300 pubs. A growing sideline is a residential management and letting service for private landlords in London.
In 1996, Nomura formed the Annington Homes consortium, which paid £1.66bn for 57,000 homes occupied by UK services personnel, which were subsequently leased back to the Ministry of Defence at a guaranteed rent.
Annington has looked at enlarging its residential rental portfolio and moving into residential development, but does not feel the market is at the right stage in the cycle.
A sister company, Annington Deutschland, has been formed to bid for an estate of 120,000 homes occupied by German rail union members and owned by the German government. Last year, Annington bid €4.2bn (DM8.1bn) and was surprised to see the deal awarded to a German rival WCM with a bid of €3.6bn. The resulting political storm re-opened the ongoing contest.
Outside the UK, the PFG is said to be constantly looking at mature economies such as Germany, France and Italy where orphan assets are most likely to be found.
Nomura International
Nomura House
1 St Martin’s Le Grand
London EC1A 4NP
Tel 44 20 7521 2000
Fax 44 20 7521 3565
