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

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2014/07/Big-T-thumb-480×294-55535.gif” thumb_width=”150″ /]Breaking 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.

Charterhouse rejects buyout bid for Tunstall Healthcare, considers refinancing

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2014/07/Big-T-thumb-480×294-55535.gif” thumb_width=”150″ /]Breaking News. Some long-awaited updates on the ongoing rumors regarding Tunstall Healthcare and a potential sale surfaced on Bloomberg late yesterday. Citing ‘people familiar with the matter’, Charterhouse Capital Partners, the owner and main investor, rejected a £300 million (US$425 million) buyout offer from private equity investment firm Triton Partners and reportedly will seek refinancing as an option if a buyout offer cannot be accomplished. However, the same sources state that talks are ongoing including with Triton and other potential investors and that no decisions have been made.

Triton is an investment firm registered in St Helier, Jersey and with locations through Europe, China and New York. It represents around 100 institutional investors and concentrates in investments in medium-sized businesses in northern Europe, Italy and Spain. In looking at their sector mix on their website, health is a small slice of their interests under consumer. This Editor speculates that they were seeking to expand this area, and perhaps sensed a bargain, because Tunstall by no stretch could be considered ‘medium-sized’.

Another interesting tidbit is that the cited sources indicated that before a refinancing, the company might need to be deleveraged. There is about £230 million in debt excluding shareholder loans and bank debt, which if included would bring the total to an eye-blinking net debt of £1.2 billion. Charterhouse purchased Tunstall in 2008 for £530 million. Current sales are £212 million for the fiscal year ending in September 2015, down from £215.2 million in 2014 according to a filing with Companies House (see 4 Dec 15 PDF in the filing history tab).

Tunstall’s statement: “Tunstall’s turnaround plan is well advanced and we are seeing improved performance,” the company said in an e-mailed statement. “Our focus is on delivering for our customers and helping them exploit the possibilities that new digital technologies present.”

This Editor’s reflection is that Tunstall is in the situation that nearly every company in telehealth and in health tech is in–a confusing market with segments as fine as a garlic clove sliced with a razor, too many players, too many segments with too many names, all chasing not enough money whether private or government.

Certainly more to come. Hat tip re the article to a Reader with long-standing experience in the telehealth field.

 

Breaking news report: Charterhouse evaluating £700 m sale of Tunstall Healthcare (UPDATED)

Breaking News

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2014/07/Big-T-thumb-480×294-55535.gif” thumb_width=”150″ /]Reuters reports as an exclusive that its sources indicate that UK private equity firm Charterhouse is considering a sale of Tunstall Healthcare Group for a possible valuation of £700 m ($1.1 bn) or more. According to this report, Charterhouse is working with JP Morgan on an exploration for a Tunstall sale in late 2015 or 2016. All three companies declined to comment.

Today, Tunstall also announced their Connected Healthcare 2020 strategy with a £100 m investment over the next five years, which we reported only a few hours ago.

Tunstall has gone through multiple hands in the past ten years. Charterhouse bought Tunstall Group in 2008 for £514m from Bridgepoint Capital, which acquired it from Hg Capital in 2005 for £225 m.

An exit for Charterhouse has long been rumored in UK healthcare circles. In the dark before the Christmas 2014 holiday, Tunstall reported disappointing results for 2014 (close 30 Sept): a YOY £6 m drop in revenue and a £9.7 m drop in EBITDA.  [TTA 24 Dec 14] According to CompanyCheck, which posts financial reports for UK companies, Tunstall Group’s net worth as of that date exceeded a negative £1 bn–a steadily declining position since 2010, though with stronger cash and reduced liabilities (see Accounts page).

We’ll post updates as they’re available.

Update 25 June with some quotes from a Tunstall spokesperson from their ‘hometown paper’, the Yorkshire Post.

Tunstall Healthcare asks lenders for covenant extension

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2014/07/Big-T-thumb-480×294-55535.gif” thumb_width=”175″ /]Breaking News. A report in S&P Capital IQ LCD (McGraw-Hill Financial) published Thursday (subscription required), states that Tunstall Healthcare Group has asked its lenders to extend for one year the step-down provisions in its loan covenants, from this December to December 2015. ‘Step-down’ is the process whereby a company begins to de-leverage over time by reducing the ratio of debt to earnings before interest, taxes, depreciation and amortization–EBITDA) and thereby add value to the company for its lenders.  Responses are due by mid-November.

The extension request indicates that the decline in UK and US revenues evident in our July report on their FY 2013 results continue, as do the perils of leveraged debt. (more…)

Tunstall secures additional £20 million from Charterhouse: implications?

Breaking News  Tunstall Healthcare Group quietly announced on 25 September an additional investment of £20 million from its private equity owner, Charterhouse Capital Partners. Our readers know from our May and July articles the business challenges Tunstall has faced. We have particularly focused on–as have Bloomberg in May, this Editor and our Founder/EIC Emeritus Steve Hards over the years–on the heavy burden of Tunstall’s debt service, multiple management changes on both sides of the Atlantic, and a decided ‘failure to launch’ in the US market.

Readers of the Sunday Times woke up to this headline and lede (what news writers use to introduce the topic and entice you to read on):

Headline: £20m to steady ship at Tunstall

Lede: CHARTERHOUSE Capital Partners, one of the City’s oldest and most secretive private equity firms, has been forced to provide a multimillion-pound lifeline to another of its investments. A fortnight ago, Charterhouse ploughed £20m into Tunstall, a healthcare technology company that makes equipment to monitor the elderly and sick at home.

Insider Media Limited (business news review) had a more measured take in its ‘Yorkshire News’ section:

Headline: BACKERS PUMP £20M INTO HEALTHCARE FIRM (more…)

Tunstall’s 2013 fiscal report: debt service makes short term gloomier

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2014/07/Big-T-thumb-480×294-55535.gif” thumb_width=”150″ /]Updated…Released on this ‘getaway day’ (in the US), and surprisingly only covered by the local Yorkshire Post, is the report of Tunstall Healthcare Group’s year-end closing (30 Sept 2013) results. The short term news is positive: 21 percent revenue growth to £221 million in its 2013 statutory accounts. However, this adds in the acquisition of Spanish monitoring provider Televida for £27.4m in January 2013 and the 2012 purchases of AMAC in the US and STT Condigi in Sweden. The official posture of the company, expressed by CEO Paul Stobart, is that “with continuing Government austerity measures and a fragile global economy, the business does face challenges in the short term.” And one of those challenges making for a gloomy picture is debt service. We’ll let the YP speak: “The group, which is owned by private equity house Charterhouse Capital Partners (CCP) paid £13.7m of interest in cash on its senior and mezzanine debt of £265m, as well as a total of £114.4m non-cash interest on long-dated shareholder loan notes and other loans. This results in a statutory reported loss for the group of £127.8m.” That change of nearly £350 million, which includes operating costs and other expenses, illustrates the critical consequences of debt service on the bottom line, indeed [TTA 22 May]. Many thanks to one of our reliable sources for picking up this report.

New: Founder Steve reminds us of his related (and oh, so prescient) analysis from 2010 about Tunstall’s earnings versus debt service balancing act in Telecare Soapbox: Equity capital. A cautionary tale. (Thank you Steve for adding)

It is worth a detailed read because the 2009 numbers were also ‘challenging’. Steve dug through 2009 publicly filed (in UK) numbers to reach his conclusions. In sum, “The important question is whether their underlying position is sound and reliable, or whether they are shaky. They also tell me that the robustness of a company’s cashflow is the most important survival factor.”  If I am reading the report on CompanyCheck correctly, the eye-watering negative net worth of the Group and the low cash positions of both the Group and UK are oddly reminiscent of airline financial statements when this Editor was still in that business. Do remember the object examples of Texas Air Corporation (once the world’s largest airline holding company), Pan Am and TWA!  You also have to have some sympathy for the management which was not part of getting into this ‘pickle’ now tasked with getting the company out of the barrel.

Tunstall’s unhappy lenders and the consequences of debt service

A ‘slipped under the radar’ story (in this Editor’s judgement, based on the lack of news references) is Bloomberg News’ exclusive on last week’s (12 May) meetings between Tunstall Group Ltd and its creditors over the company’s recent performance. According to Bloomberg’s sources, the meeting was called “after income plunged and management changed following a refinancing in September.” In a statement from Charterhouse that cleverly tap-danced past the reason for the meeting, “Tunstall continues to be a successful, profitable, cash-generating business and comparable to many other organizations, experiences short-term fluctuations in performance.” and “The group has been impacted by a number of factors including specific market factors and the continued strength of sterling against the major-trading currencies.” The business has also been hurt by delays in awarding major contracts, according to the statement.

From the Bloomberg article:

As Tunstall’s profits have declined, its ratio of debt to earnings before interest, taxes, depreciation and amortization increased to 5.6 times as of March, from 4.7 times in September, the people said. The loan terms in the March test dictated that the leverage ratio shouldn’t exceed 6.3 times, they said.

Lenders are expecting the company to give a new profit forecast today for the 12 months to September 2014, according to the people. The company didn’t comment on earnings targets or leverage in its statement.

AND: Its 350 million pounds ($590 million) of loans dropped to as little as 77 pence on the pound, according to broker quotes, from 99 pence in September. (Ed. note: these loans are publicly traded and a lowered value is highly significant as to the debt quality.)

The outcome of the meeting is not yet known.

As our readers know, private equity firm Charterhouse Capital Partners LLP acquired Tunstall Group in 2008 from Bridgepoint Capital  for £514 million (US$ 1 billion), funded in part with over £242 million in debt and with Bridgepoint and management retaining small shares (FT.com). The September 2013 refinancing was for £350 million ($590 million). This paints a picture of a highly leveraged company beholden to many beyond its owners and its contractors in local authorities and housing associations. Tunstall and Charterhouse also received negative publicity when the Guardian did an exposé on their use of the (wholly legal) ‘Quoted Eurobond Exemption’, where they pay loan interest at high rates to their parent companies through a mechanism via the Channel Islands Stock Exchange.

Management changes over the past six months have also rocked the top layers of the company. (more…)

Changes at the top at Tunstall

EXCLUSIVE

A reliable and informed source has told this Editor (1 Nov) that Gil Baldwin, Group CEO of Tunstall Healthcare Group Ltd. will be stepping down, to be replaced by Paul Stobart, the former CEO of CPPGroup plc. Mr. Baldwin joined Tunstall in March 2010 from major insurer Aviva, where he headed Aviva Health. Prior to CPP, Mr. Stobart held various positions over 15 years at global enterprise software giant Sage Group, concluding as their CEO for Northern Europe.

Charterhouse Capital Partners acquired Tunstall in 2008, with former owner Bridgepoint Capital retaining a minority share. However, a sale/VC exit has long been rumored. The company recently received some unflattering attention on its (fully legal) usage of the Quoted Eurobond Exemption in The Independent [TTA 25 Oct].

This Editor notes that Mr. Stobart became CPPGroup’s CEO to manage the fallout after it was revealed in March 2011 that the FSA (Financial Services Authority) was investigating the company for mis-selling their bank card protection and identity theft products. After two years of struggle and a record £10.5 million FSA fine, four major banks dramatically rescued the company in July with an eleventh-hour £38 million refinancing, but the consequence of restructuring was that Mr. Stobart and the CFO both stepped down in August. [Guardian, Sky News via Orange, CreditToday] This was certainly a trial by fire. It should also be noted that to this Editor’s knowledge, Mr. Stobart has no specific healthcare, telecare/telehealth or health insurance experience, which is unusual for a position of this type.

Update 4 November: Tunstall’s release at 2:20 PM UK time, making this official. Our source indicates that Mr. Stobart’s start date is today (Monday) and it transpired quickly with business staff only being notified internally last Wednesday, which makes this an exceedingly quick change.