Silverfleet Capital

Gala

Business overview

In 1997 Gala was a bingo club operator owned by Bass plc, with c.130 clubs across the UK. As a strong number two in the UK, it represented an excellent platform from which to lead a consolidation of the bingo market.

Investment rationale

Prior to our investment in, we had been working for a number of months with a high quality MBI team to identify opportunities within the low ticket, high volume gaming sector. Gala, our preferred target, was without a senior management team, consequently our exclusive relationship with the MBI team, together with our strong track record in the leisure sector, was successful in ensuring that we were one of only 3 parties invited into a limited auction in 1997.

Despite being operationally undermanaged, we saw that there was a significant opportunity to improve underlying profitability and to improve the quality of the existing estate by exiting under-performing sites and initiating a selective new site roll-out program.

Value creation

Under Silverfleet Capital’s ownership, Gala completed three acquisitions with a total enterprise value of £145m, emerging as the clear number one in the UK bingo market. We worked closely with management to identify, negotiate and secure these acquisitions, arranging the debt finance necessary to support this buy and build strategy.

Outcome

Having successfully completed a consolidation of the UK bingo market, the decision was taken to seek an exit, and in April 2000, the business was sold for £370m in a secondary MBO, led by CSFB Private Equity who were looking to back the next phase of its strategic development plan, which involved expanding its interests into other high volume, low ticket gaming segments.

We remained strongly supportive of both the business, the management team, and the strategy for diversification, and so encouraged by the Gala management team, we negotiated to reinvest £20m alongside CSFB. We remained closely involved with the business over the following investment phase, taking a seat on the board and maintaining an active involvement in the subsequent investment strategy.

Within twelve months of the secondary MBO, Gala had made its first acquisition outside the bingo sector, acquiring Ladbrokes regional casino’s business for c.£235m. The acquisition was closely aligned to the strategy of diversification into other forms of high volume, low ticket gaming, and we were pleased to support the acquisition with a further £19m equity investment.

Over the course of our investment in the Gala Group, the business completed and successfully integrated four acquisitions whilst consistently achieving above market like-for-like sales growth and more than tripling EBITDA.

Both stages of our investment were highly successful for Silverfleet Capital, with the exit to CSFB generating a 28% IRR and 1.8x money multiple, and the tertiary MBO to Candover and Cinven, which valued the business in excess of £1.2 bn, generating a 54% IRR and 3.1x money multiple.