Charterhouse lost half its equity in Tunstall debt refinancing–Sunday Times report (updated)

click to enlargeBreaking News, even though it happened in March! See updates below. The Sunday Times (UK–sign up for limited access) broke news over the weekend that Charterhouse Capital Partners, the main investor in Tunstall Healthcare, along with other shareholders, have been forced to relinquish nearly half the equity in the company to senior lenders and management. According to their annual report on page 65, section 31**, this happened on 17 March after the close of the FY, but only now has come to light through the Sunday Times report.

The article is light on details, but our Readers who’ve followed Tunstall’s history since the Charterhouse purchase in 2008 for £530 million will not be surprised, only that this development took so long. The cold facts are that the company has been wrestling with a stunning debt burden that grew from £1.2bn in 2015 [TTA 15 Apr 16] to the Times report of £1.7bn at the end of last September, with £300m owed to lenders and £1.2bn to investors. Debt service drove their financials to a £391m pre-tax loss last year. 

The highlights of the deal as reported in the Sunday Times:

  • Senior lenders (not disclosed) received 24.9 percent of Tunstall’s shares. Management received 25 percent.
  • Charterhouse with other shareholders now have a razor-thin controlling balance of 50.1 percent. Prior to this, Charterhouse alone had 61 percent of Tunstall’s shares.
  • In return, the lenders agreed to relax covenants on their debt, termed a ‘covenant reset’.
  • Tunstall also spent £18.5m last year on an abortive attempt to sell itself for up to £700m. We noted reports in April 2016 that they rejected a £300 million (US$425 million at the time) buyout offer from private equity investment firm Triton Partners.

**For those who wish to dig deeper, Tunstall’s hard-to-find annual report through last September (but not filed until 29 March 2017)  is available through Companies House. Go to their index here and select the “Group of companies’ accounts made up to 30 September 2016” which currently is the first listing.

This will be updated as other sourced reports come in, if they do–for now, it appears that the Sunday Times has the exclusive ‘dig’. It is unfortunate since Tunstall is responsible for millions of customers and employs thousands worldwide, and has been aggressively investing in the company and technology while having a fair amount of churn in executive and director positions. Regrettably, they never capitalized on a established position in a big market when they bought AMAC in 2011, then estimated as the US’ third largest PERS company. But as this Editor closed her 2016 article, the whole category of healthcare tech, while becoming more accepted and with a few exceptions, regrettably is still mired in ‘too many players, too many segments with too many names, all chasing not enough money whether private or government.’ I will add to that equation ‘too few users’–still true among older adults and the disabled–and ‘technology that moves too fast’ to make it even more confusing and unsettled for potential buyers (obsolescence on steroids!). And ‘gadgets’, to use the Times’ wording, are among the worst culprits and victims of these factors.

Updated: Equity capital. A cautionary tale was Editor Emeritus and Founder Steve Hards’ prescient analysis of the risks that Tunstall and Charterhouse undertook in acquiring so much debt. After you read it, note the year it was published. More recent commentary on Tunstall’s financial deteriorata dating back to 2013 can be found here.

Categories: Latest News.

Comments

  1. Ah, thanks, Donna, for reminding me (in the update) of my lack of expertise in the mysteries of corporate finance! Who’s to say that the apparent loss by Charterhouse isn’t just some tax-minimisation wheeze?

    • Donna Cusano

      Steve–Yes, but that means you come in with few preconceptions, and express the surprise that we should have! We should also reflect that a large base of Tunstall’s UK and EU business (and I suspect Australia) comes from public funding, which we also analyzed.

      My experience from the US side is that too much debt turns companies into zombies, barely able to move–witness what is happening to Sears, once one of the world’s preeminent retailers. Too much debt, not enough revenue, has sent the world’s greatest airlines into Chapter 11–and 7. Eventually, the books must balance.

  2. Stephen

    Confused by this item. I worked at MCI WorldCom aka Verizon whrich went into chapter 11. Have Tunstall/Charterhouse got the assets to meet obligations. £1.7bn is a massive amount of debt

    • Donna Cusano

      Stephen, you said it. They are a UK company so the accounting rules are different than in the US. Add to it that their ownership is convoluted through offshoring and international subsidiaries–it also involves public financing. What they have done is refinanced themselves through a covenant reset, which they’ve attempted to do for several years. We will see what happens!

Leave a Reply

Your email address will not be published. Required fields are marked *