It’s a new name; same old dilemma. How will the owners of Mannok Holdings, the former Quinn Industrial Holdings, realise their investment in a very profitable building products and packaging business? Mannok, named after the Irish for Fermanagh, Fear Manach, seat of the former billionaire industrialist Seán Quinn, posted a 17 per cent rise in earnings last year to more than €31 million.
Since its new owners took over in 2014, sales and staff numbers have risen 44 per cent and 25 per cent respectively. About €66 million in capital expenditure has helped to underpin the security of over 800 jobs. This is a good news story.
The value of the business will also have increased substantially, which should be a great news story for its owners. Three hedge funds, Silver Point, Brigade Capital and Contrarian Capital, control 78.6 per cent of Mannok, while management and investors own 21.4 per cent. The hedge funds bought Quinn group for €98 million in 2014. It’s worth much more than that now. The bulk of the value resides in the cement and building materials arm, which accounted for close to 90 per cent of the purchase price in 2014.
The London-listed Breedon Group acquired Lagan Group, an old and bitter rival of Quinn, for £455 million (€524 million) in 2017. At the time, Lagan had revenues of £249 million and earnings before interest, tax and depreciation of £46 million. So Breedon paid roughly ten times ebitda for Lagan. Breedon Group itself is valued at over 14 times ebitda.
Even allowing for a lower multiple on its much smaller packaging business, and sticking with the Lagan multiple, Mannok is probably worth north of €280 million, or almost three times what the owners paid six years ago.
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The equity returns are actually much higher, as much of the acquisition debt provided by the hedge funds has been paid down. The group reduced its debt by more than €19 million last year. So, the equity returns should be close to sixfold or more, pointing to a profit of over €100 million for the hedge funds.
Yet this would be in a normal world, predicated on a buyer emerging that is willing to pay the rightful price for a very good and well managed business.
In 2019 the same three hedge funds hired an investment bank to seek buyers for the group. Within months, Kevin Lunney, a senior executive of what was then called Quinn Industrial Holdings, was kidnapped and tortured. This is not normal.
The incidence of intimidation and threat at the former Quinn business appears to have subsided, to a degree. Yet its history remains a huge impediment to any sale of the group. So the investors are, to an extent, stuck. As the equity value of the business rises, the most likely exit for Silver Point, Barricade and Contrarian would be a refinancing, with the group borrowing funds to buy out its own shareholders, at a discount to the real value of the business, yet still at a healthy multiple of their own investment. Yet who would fund such a deal? An Irish or UK bank?
It can be argued that the hedge funds should have been aware of the fraught circumstances from the offset. Yet this is a unique and sinister situation.
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The group deserves to be restored as a powerhouse for growth and job creation in the border region. Will it be given the opportunity to do so? No management team deserves a break from the past more than the extraordinarily resilient executives at Mannok.
Banks fail to convince on unfair rates
The banks never tire of telling us that the reason why mortgage interest rates are so high is because of the disastrous property crash of the late Noughties. According to the Central Bank of Ireland, at an average of 2.79 per cent in February, Ireland had the second highest mortgage interest rates across the euro area. The average is 1.27 per cent. Another reason for the high mortgage rates, a recent Banking & Payments Federation report revealed, is difficulty enforcing security. So no price-gouging; merely legacy losses and legal latitude.
The logic is compelling, but it does not really explain why unsecured consumer lending rates here are on average pitched at 6.96 per cent, compared with a euro average of 5.23 per cent. Indeed, the gap is larger for personal loans than mortgages. There has been no consumer credit crisis here, and there is no issue around security with unsecured lending.
Also, deposit rates here are 0.1 per cent, compared with the eurozone average of 0.28 per cent.
The bankers’ federation will surely offer a perfectly logical explanation, beyond the obvious one.
brian.carey@sunday-times.ie