20:20 Mobile appeared to be on a stronger footing this week, after what has been a painful 18 months. Much of that pain is rooted in the anvil hanging around the company’s neck: the £265m debt, which was considerably relieved when almost 60% was written off last week.
The situation took a dramatic turn a fortnight ago with the intervention of Peter Jones. Jones, owner of 20:20’s rival Data Select, attempted to wrest control of 20:20 with a takeover bid to buy it through 20:20’s debt syndicate. A written bid to buy the business emerged last week, following months of behind-closed-doors talks with members of the syndicate and an initial verbal offer.
Jones first considered a purchase last Christmas. At the same time, Doughty Hanson appointed Meinie Oldersma as CEO of 20:20 Mobile, following the exit of Oldersma’s predecessor, Mark Ryan, two months previously.
Oldersma came from IT distribution giant Ingram Micro, where he ran the Chinese division since June 2004. It coincided with figures emerging at the time that 20:20 had endured a brutal few months, falling way short of its £8.8m profit target for October, recording £3.1m in profit at the time.
Jones’ interest was piqued with an opportunity that, had it been suggested one year previously, would have been dismissed as the vision of a fantasist.
Jones cut his teeth in the mobile industry at 20:20 under John Caudwell, and left to set up Phones International, Data Select’s parent company. Data Select has been a small player in the sector for years, almost in a mini league outside of the market giant, and his former employer.
In the coming months, a momentum built in Jones’ mind to pursue a takeover of 20:20. A critical February deadline was set for 20:20 to meet with the debt syndicate with mounting concern over 20:20 breaching the covenants (the targets it forecasted). Jones had an ace up his sleeve that he believed would be a major asset: he was already banking with two senior members of the debt syndicate: Barclays and Mizuho.
The deal of the year that never was
Ever since the missed targets, relations between some members of the debt syndicate and Doughty Hanson have appeared to be strained.
One member has previously said: ‘It’s difficult to maintain trust with Doughty when forecasts are consistently missed.’
More recently, the syndicate is presenting a more united front with the private equity sponsor as it looks to agree on the new finance structure and get behind Oldersma’s three-year strategy that he unveiled last month.
Meanwhile, Jones approached members of the syndicate five weeks ago and had an informal conversation about a potential deal. He made an offer and revealed accounts to demonstrate he had funding. He is believed to have the financial backing of a high-profile billionaire outside the mobile industry, who is a close associate of Jones.
The debt syndicate is made up of five parties in the ‘steering group’, with a further 17 in the rest of the syndicate.
The two lead banks, who Jones had made an informal offer to, took it to the rest of the steering group, and the offer was then taken to the rest of the syndicate.
It is believed that the offer was a cash consideration of £120m for the whole of the 20:20 Mobile organisation, including the Swedish subsidiary, Axcom.
The deal progressed with a formal meeting between Jones and the syndicate at the Holborn offices of law firm Lovell’s in London on Monday 23 June.
Jones is understood to have made his pitch to the syndicate, demonstrating that a combined company would be able to strip out costs, and compete much more strongly in the market and offer a return to the bankers.
During that meeting, it is also believed that the syndicate requested that Jones step outside of the offices while they discussed the offer.
For 30 minutes Jones was outside the offices, while the syndicate considered a deal that was being conducted without the knowledge of the owner, Doughty Hanson.
It is also understood that the syndicate had two primary concerns. The first is whether the deal would pass Office of Fair Trading (OFT) regulations on sufficient competition in the market. Jones is understood to have taken legal advice on the implications of creating a monopoly and was sufficiently confident that it would be cleared. The second was the ramifications of what would happen if the deal fell through, and where that would leave relations between the syndicate and Doughty.
Oldersma was seen as a critical factor in the deal, as the individual with visibility on the day-to-day finances of the business, and a key broker in a potential deal.
The banks are understood to have spoken to Oldersma, and sent accountancy firm KPMG to speak to him.
The banks had appointed the services of KPMG earlier in the year to keep a close on financial affairs.
Jones planned on taking on the position of executive chairman of the new organisation, but the deal fell through in the following days.
Rival distributors are believed to have approached Doughty Hanson after news of the Data Select deal leaked into the press, and made their own enquiries.
Doughty Hanson and 20:20 Mobile gave a firm ‘not for sale’ statement to rival bidders and press in the following days. Oldersma said: ‘It was an unsolicited offer, and although I understand the reasons behind it, the company is not for sale. We are re-financing at the moment.’
Is a deal still on?
Jones is determined to continue to pursue a deal in his bid to consolidate in what is a tough market, and establish Data Select as an international distribution giant.
Jones said: ‘There’s ongoing consideration and negotiation as far as I’m concerned. The banks now have the same equity stake as Doughty and are in a more powerful position.’
20:20 is adamant that the deal is settled and the skirmish with Jones has ‘been and gone’. Certainly the members of the syndicate are buoyed by Oldersma and Smith’s plan.
Jones believes it is a ‘reputational issue’ for Doughty Hanson to emerge from the investment while saving face.
How much of that is true is debatable. One in five VC buy-outs succeed, and there are many more private equity investments struggling in the current economic climate.
One source said: ‘Doughty has nothing to be ashamed of. They’ve got enough investments doing well, and the combination of what is happening in the mobile market and what is happening in the economy has made it tough.’
Jones says of his approach to buy 20:20: ‘Yes, I’ve been an opportunist, but I’ve backed it up with a genuine offer.’
The Phones International chief has his sights on a deal before Christmas. It would be incredible to pull off such a complex deal with so many parties involved.
Sceptics say that the current economy has restricted the amount of money available to borrow for a potential acquisition.