Cogneta's Interest in Danoptra and LC

LC Struggling

The Sunday Times reported on 13.4.08 that a hedgefund, Blue Bay. and Credit Suisse are preparing to take control of Danoptra, the company that owns LC. http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article3671627.ece 

"The two institutions are in talks to acquire Danoptra’s bank debt, which stands at about £80m. Danoptra, previously known as Kunick, was taken private in a management buyout in 2002 with backing from Cognetas, the private-equity house. 

It has two main businesses. One runs fitness centres on behalf of local authorities, while the other distributes gaming machines to pubs and other leisure businesses. 

Both have struggled, leading to Cognetas writing off its equity in the deal. The borrowings are now being sold on in a debt-for-equity swap and a deal could be concluded in the next few weeks."

The article refers to an equity write-off and reports that Danoptra recorded a pre-tax loss of £24.3m for the year to September 2006, a significant reduction on the £79.4m it lost in the previous 12 months.    See also LCW on Company Finances

Note - Cognetas was formerly known as Electra 

From an Electra Partners in Europe "Transaction Update" dated July 2002  http://www.electraeurope.com/admin/Publisher/EPETransactions/uploads/Kunick%20TU.pdf 

In July 2002, Electra Partners Europe led the management buy-out (‘MBO’) of Kunick PLC, a company listed on the London Stock Exchange. The transaction valued Kunick at £118 million (€185 million) and represented an average premium of just over 20% to the valuation prior
to the original bid speculation. The Electra European Fund has invested £50 million (€78 million) in the MBO and will own just under 80% of the equity, with management and mezzanine providers holding the remainder.

Kunick is focused on two distinct UK businesses: leisure facilities management and amusement machines. Leisure Connections, the leisure facilities management business, specialises in servicing the requirements of local authorities, primarily through managing their leisure centres. It is the clear market leader in the sector with approximately 50 long-term contracts and some 25 million public visits per year. Significant growth opportunities are
believed to exist as a result of continued outsourcing of local authority facilities and the ability of the business to offer a full range of value for money leisure activities to the public in a growing leisure marketplace. The business had turnover of £75 million for the year ended 30 September 2001.

Kunick's amusement machine business is the second largest in the UK with over 40,000 machines. The main activity of the business is the rental of “fruit” and other amusement machines to pubs, betting offices, clubs and other outlets under extended supply contracts. It also has machines games design and manufacturing interests. Good medium term prospects exist from the application of computer based “soft” product to this traditional marketplace and changes in gaming legislation. For the year ended 30 September 2001, the amusement machine business had turnover of £95 million.

Investment Rationale and Strategy

Electra Partners Europe is backing Kunick's senior management, led by Colin Daniels, in taking the company private in order to provide a level of financial flexibility and focus which was not feasible as a public company within its existing capital structure. Leisure Connections will concentrate on winning new contracts and exploiting opportunities with existing customers. The amusement machines business will seek to take advantage of the opportunities afforded by new technology and relaxation in legislation and as appropriate, pursue in fill acquisitions.

Electra is represented on the Danoptra Board by Peter Wilson, see People in LC & Danoptra.

From Leisure Opportunities 27.5.02  http://www.leisureopportunities.co.uk/LOemail/wider_newsdetail.cfm?codeID=2222 

Amusement and gaming machine supplier and leisure management group Kunick has announced the agreement of a management buyout worth £78.2m. A review of strategic operations implemented by the board last summer led to the proposal made by chief executive Colin Daniels on behalf of the Independent Directors and the board of Danoptra, a company set up specifically for the purpose of acquiring Kunick. 

'The board considered the issues which were having an adverse impact on the group and restricting its ability to deliver improved shareholder value,' said Clive Clague, Kunick chairman. 'The Independent Directors believe these issues are unlikely to change in the foreseeable future and therefore the proposal provides the best available opportunity for shareholders to realise their investments.' 

The deal is being funded by Electra Partners Europe, a European manager of private equity, and Royal Bank of Scotland Leveraged Finance. 

'This offer will enable the businesses to move forward without the constraints and difficulties provided by the current capital structure and publicly listed status of the company,' commented Robert Clarke, director of Electra.