Crescent Capital's problem child | copyright link Crescent Capital's...

Crescent Capital's problem child | copyright link
Crescent Capital's problem child

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Cardno CEO Richard Wankmuller. Investors are starting to wonder whether Michael Alscher's Crescent Capital has met its match at Cardno. Wayne Taylor

• by
• Sarah Thompson
• Anthony Macdonald
• Joyce Moullakis

Private equity managers and their investors love talking about the good deals. The stories about how Quadrant Private Equity made 6.2-times money on iSentia or the way Pacific Equity Partners turned a relatively plain business like Hoyts Group into a 2.9-times money back investment are the stuff of industry legend.
But for every success story, there is the one that did not go so well.
And while it is early days, investors are starting to wonder whether Michael Alscher's Crescent Capital has met its match at Cardno.
Crescent stormed on to the scene in May last year, taking an initial 4.48 per cent interest via a cash settled equity swap with Deutsche Bank. It added to the stake with share purchases on-market and by September 2015 it had nearly 20 per cent of Cardno's issued equity and was ready to make a takeover bid.
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Cardno summary of pro-forma and statutory results.
Then things got a bit weird. Crescent, advised by Gilbert + Tobin and Credit Suisse, made a proportional takeover offer at $3.15 a share, seeking to own up to 58.91 per cent of the company. Unusually for a private equity play, it was a hostile bid with no formal due diligence or access to Cardno's inner most secrets.
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By the time Crescent's offer closed in November 2015, it had a 40.9 per cent stake, and Cardno appointed three Crescent representatives to its board.
But Cardno's business was deteriorating at an alarming rate. The company came out with a $78 million rights issue at $1 a share through Credit Suisse; which was a far cry from Crescent's $3.15 a share proposal. Crescent's stake increased slightly to 43.16 per cent.
About six months later, by June this year and with the business still going backwards, Cardno was back in front of shareholders again, seeking another $92.5 million equity injection, this time at 40¢ a share.
Crescent took up its rights and now has 46.71 per cent.

And two equity raisings later, Cardno still has debt worth 2.5-times EBITDA, which is not a long way from its three-times covenant. And its United States business, in particular, is performing badly. [Crescent's own expectations are for a $133 million loss in the 2016 financial year and EBITDA down 61.2 per cent to $41.9 million.]
By Street Talk's numbers that means Crescent and its co-investors have put in $322 million for a 46.71 per cent stake. At Thursday's trading price, that stake would be worth only $152 million.
Every private equity manager has maximum amounts of their fund they can pour into any one investment and you would have to think Crescent would be close to that limit.
LIke we said, it's only early days. But Crescent has a lot of work to do at Cardno and while the stock trades on the ASX, it will have to happen in full public view - which is just what private equity managers hate.


Read more: http://www.copyright link/street-talk/crescent-capitals-problem-child-20160818-gqvbm6#ixzz4HjnS3Fgq
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