Aeroplan buys Nectar and its operator, LMG
The Canadian loyalty marketing firm Aeroplan has entered into an agreement to buy the privately-held operator of the UK's Nectar loyalty coalition, Loyalty Management Group (LMG), for a total £368 million (approx. Can$754.4 million).
The deal's final price is subject to a holdback in the amount of £31.6 million (Can$64.8 million), the future payment of which is subject to the outcome of the company's outstanding Value Added Tax (VAT) litigation. The transaction is expected to close by the end of 2007.
What's being sold LMG is being acquired from company chairman Sir Keith Mills, global private equity investor Warburg Pincus, and the company's existing management team. LMG is a loyalty marketing and customer-driven insight and analysis firm that owns and operates the Nectar loyalty programme in the UK. The group operates in three main areas: Nectar, Insight & Communications (I&C), and Loyalty International.
The Nectar programme has membership of approximately 50% of the UK's households, and partnerships with 15 leading national retail brands. LMG I&C uses customer data to provide retailers and consumer packaged goods companies (CPGs) with insight into consumer shopping trends to help enhance trading and marketing decisions. Finally, LMG's international arm seeks to launch and operate loyalty programmes in other countries.
LMG owns and operates the Nectar brand, as well as the Air Miles trademark around the world, and has a 20% stake in the Rewards Management Middle East Limited (RMMEL) which owns and operates Air Miles programme in the Middle East. Aeroplan is currently an unincorporated, open-ended trust established under the laws of the Province of Ontario, Canada. Aeroplan reports that it is still considering plans to convert into a corporate structure, although no final decision has been made yet.
Big step for Aeroplan "This announcement marks an important milestone in our stated acquisition strategy," explained Rupert Duchesne, president and CEO for Aeroplan UK. "The acquisition of LMG gives us new breadth of retail, financial services, and travel, as well as data analytics skills and experience. Aeroplan has found the right partner to pursue international expansion opportunities."
For LMG, the acquisition will bring increased financial strength as a result of being part of a larger publicly-traded entity, as well as additional skills and expertise in complementary business sectors. Consequently, the transaction is expected to act as a catalyst to help accelerate LMG's larger-scale plans. Alex Moorhead, CEO for LMG, commented: "Over the past 18 months we have been strengthening our position in the UK loyalty arena, deepening our customer insight and analytics expertise, and progressing international opportunities."
Importantly, Aeroplan has confirmed that the two loyalty programmes, Nectar and Aeroplan, will continue to be operated separately, and members' participation in either programme will be completely unaffected by the acquisition.
Transaction highlights Key facts concerning the buy-out include:
- The transaction price comprises £350 million (Can$717.5 million) plus working capital adjustments of £18 million (Can$36.9 million), producing a total consideration of £368 million (Can$754.4 million).
- The purchase price is subject to a holdback in the amount of £31.6 million (Can$64.8 million), the future payment of which is subject to the outcome of LMG's current VAT litigation.
- Substantially all of the transaction price will be payable in cash at closing with certain members of LMG's management exchanging a portion of their LMG shares for Aeroplan units.
- The acquisition is expected to be immediately (although modestly) accretive to distributable cash in 2008.
- Aeroplan is to finance the acquisition through a combination of existing cash resources and debt.
- Closing of the deal is expected to take place before the end of 2007.
- RBC Capital Markets acted as financial advisor to Aeroplan, and has provided the debt financing necessary to complete the transaction.
- Rupert Duchesne will continue as president and CEO of Aeroplan, and Alex Moorhead and his executive team will continue as the management of LMG.
According to LMG chairman, Sir Keith Mills, "This announcement marks an exciting milestone in the development of LMG. The company has grown rapidly in recent years and the Nectar programme has become the largest customer reward programme in the UK. Warburg Pincus, as a major shareholder, has continually supported the company's strategy and contributed to this success. All shareholders strongly believe Aeroplan is the right partner to take the business forward and successfully realise its next stage of growth. Together with Aeroplan and the expertise of the current management team, LMG will be able to pursue international expansion and capitalise on the significant opportunities in loyalty and data management."
An analyst tele-conference was held on Monday 3rd December 2007, replays of which have been made available for 60 days (call +1 416 640 1917 and use the passcode: 21255320#).