Jon Moulton’s Better Capital has snapped up troubled courier brand City Link from Rentokil Initial for just £1.
According to the official statement to Rentokil Initial shareholders, the private equity firm completed the deal today.
The current City Link management team is continuing to run the business with a £40 million cash injection from Better Capital which the management believes will assist in the completion of the group’s turnaround plan.
Alan Brown, chief executive of Rentokil Initial, said he believed City Link has now turned the corner after five years of substantial losses.
“I believe City Link has now turned the corner after five years of substantial losses. The business has made strong financial progress over the past two quarters, it now has a strong management team and we have found a very committed investor in Better Capital.
“Rentokil Initial has decided to divest of City Link at this stage of the turnaround so that we can concentrate on our core international businesses in Pest, Hygiene and Workwear. The sale positions Rentokil Initial as a stronger and more focused group.”
City Link reduced adjusted operating losses from £31m in 2011 to £26m in 2012. First quarter 2013 performance continued to show an improved trading performance delivering an adjusted operating loss of £8.1m, an improvement of £4.6m against Q1 2012.
The gross assets of City Link as at 31 December 2012 were £77.6m. Rentokil Initial will take an exceptional charge of approximately £40m with its Q2 results. This will comprise asset write offs of approximately £30m and additional cash costs of approximately £10m.
Rentokil Initial has retained certain parent company guarantees, including approximately £20m relating to leasehold properties.
We anticipate that the contingent leasehold liabilities will significantly reduce over the next 3 years and that they would be mitigated substantially if the guarantees were called.