UK’s City Link sold for £1 after five years of losses

British delivery firm City Link has been sold off by owner Rentokil Initial to a private equityfirm for a nominal £1 after five years of losses resulting from a failed takeover integration and

City Link has been sold to BECAP12 Fund LP (“Better Capital”), a private equity investor whichhas pledged to invest £40 million into the parcels operator to provide “more than sufficient”funding to complete its ongoing financial turnaround, Rentokil Initial announced. The sale iseffective immediately.

The current City Link management team, led by David Smith, will continue to run the business.Smith, a former Parcelforce managing director, has brought in a completely new management team overthe last year or so after previous managers failed to stem the company’s losses.

Smith commented: “This is great news for our customers and our colleagues. We will all benefitfrom the expertise of Better in business turnaround and from the certainty of funding the dealprovides. My message to our customers would be that while in the short term it is business asusual, very quickly we will start to see the access to new capital, and the expertise Better bringto bear, accelerating the investment and improvements we are making in our customerexperience.”

City Link, one of Britain’s major parcel delivery companies, managed to reduce its operatingloss by 16% to £26.4 million last year while its revenues increased nearly 5% to £321.7 million.Volumes grew strongly by 17% due to more business from large volume, lower price B2C customers, andthe company stepped up its operating cost savings.

In the January – March first quarter of 2013, City Link reduced its adjusted operating loss to£8.1 million, a 36% improvement on the first three months of last year. But its revenues droppedslightly by 0.7% to £72.7 million.

Alan Brown, CEO of Rentokil Initial, said: “I believe City Link has now turned the corner afterfive years of substantial losses. The business has made strong financial progress over the last twoquarters, it now has a strong management team and we have found a very committed investor in BetterCapital.

“Rentokil Initial has decided to divest of City Link at this stage of the turnaround so that wecan concentrate on our core international businesses in Pest, Hygiene and Workwear.  The salepositions Rentokil Initial as a stronger and more focused group,” he added. One year ago, Browndescribed City Link as “a problem child”, saying the loss-making firm “is not for sale but it couldof course be bought”.

Rentokil Initial, a conglomerate of diverse companies, will take an exceptional charge ofapproximately £40 million with its April – June 2013 Q2 results, comprising asset write-offs ofapproximately £30m and additional cash costs of approximately £10m. The gross assets of City Linkas at 31 December 2012 were £77.6m. 

City Link’s turbulence began with the over-ambitious acquisition of rival Target Express in 2006for £210 million in a deal designed to “create a leader in the premium overnight parcels market,able to meet the future needs of customers and develop new products and services”. Its 2007revenues rose 95% to £417 million following consolidation of Target Express.

But the quick integration of the two companies’ networks generated massive operating problemswhich led customers to switch business to rivals and the company slumped into the red. There was asuccession of management changes as City Link tried to fix the network problems and restorecustomer confidence while also reducing operating costs, including through job reductions.

The sale thus marks the start of a new era for City Link as a standalone delivery company ratherthan as part of a stock exchange listed broadly-based group.