Next Capital II

Next Capital II is managed by Sydney based Next Capital Management Pty Ltd.

Next Capital Management (www.nextcapital.com.au) was established in 2005 by Sandy Lockhart, Patrick Elliott and John White, who were former principals of Macquarie Bank’s private equity arm, Macquarie Direct Investment Limited (MDI).

MDI raised and invested four private equity funds with the founders of Next Capital delivering top quartile returns across the MDI investments in which they were involved.

Having completed 39 investments and 24 exits across more than 20 years of investing the executive team at Next Capital represent one of the most commercially experienced managers in the Australian market.

Examples of the executive team’s previous investments while at MDI include;

- JB Hi-Fi, acquired by MDI in July 2000 for $42 million and subsequently listed on the ASX in October 2003 at an enterprise value of $175 million delivering an internal rate of return (IRR) on the investment of 88% p.a. and 6.5 times equity capital invested.

- InvoCare, acquired by MDI in May 2001 and subsequently listed on the ASX in December 2003, raising $172 million, delivered an IRR of 48% p.a. and 2.8 times equity capital invested.

Next Capital II, with a total fund size of $285m, is focussed on investing into small to mid-market expansion and buyout opportunities of profitable, Australian & New Zealand businesses, with enterprise value of between $50 million and $250 million at investment.

Investments completed to date by Next Capital II include Onsite Rental Group, Discovery Holiday Parks, Aero-Care, Next Athleisure, Go Bus & Scottish Pacific Debtor Finance.

Onsite Rental Group. During December 2010, Next Capital II invested in Onsite Rental Group to fund its acquisition of Perth based equipment rental business Statewide Equipment Hire.

The Onsite Rental Group is one of Australia’s most experienced national equipment rental companies providing an extensive range of specialist rental products and services across multiple industries and geographies.

The company’s solutions include portable buildings and toilets, power generation, air and pumps, welders and lighting towers, access equipment, event solutions, scaffolding and temporary fencing.

Industries serviced include mining, infrastructure, commercial, Industrial and residential construction, events, logistics, government and public services. Major customers include BHP, Rio Tinto, Fortescue Metals, Thiess, Monadelphous, John Holland, Bilfinger Berger Services and Leighton Contractors.

Discovery Holiday Parks - During December 2010, Next Capital II purchased Discovery Holiday Parks from Allegro Private Equity.

Discovery Parks is Australia’s largest owner and operator of holiday park accommodation and a major provider of workforce and corporate accommodation, with a portfolio of 31 parks across all states of Australia.

The portfolio comprises in excess of 6,200 accommodation sites (rooms, cabins, and caravan / camping sites) with an additional 1,200 sites in various stages of planning approval.

Alliances exist with BIG4 and other Top Tourist and Family Parks to ensure maximum exposure to the Discovery Holiday Parks name as it continues to secure it’s position as market leader in the accommodation park industry.

The success enjoyed by Discovery Holiday Parks today has been established by developing systems and procedures that streamline the operations, whilst maximising the customer experience and delivery of the Discovery Holiday Parks brand values.

Discovery Parks’ strategy is focussed on continued portfolio improvement to deliver high levels of customer satisfaction. Since 2008, Discovery Parks has delivered compound EBITDA growth of 21.2% per annum, with total room nights increasing by approximately 54% across the same period

On 10 February  2014, Next Capital II completed the sale of Discovery Parks, excluding Discovery Parks Onslow, to Queensland-based industry fund, SunSuper.

SunSuper previously owned 30% of Discovery and offered to buy the remaining 70% of Discovery at an Enterprise Value of $240 million which represented an 8.5 X EBITDA

Next Capital II subsequently then regeared Onslow and distributed further proceeds to investors.

The Discovery exit, the first from the Next Capital II fund, delivered Next II investors including VPEG a >2.5x multiple of money and IRR of in excess of 38%, with further potential upside to flow from this residual interest in Onslow.

Aero-Care - On 8 September 2011, Next Capital II (Next II) completed the management buyout of Aero-Care Pty Ltd, Australia’s largest independent provider of outsourced airport services focused on ground handling.

Aero-Care is a well-run, established, high-margin business exposed to long term growth in outsourced services to the airport infrastructure market. Aero-Care  focuses on serving the growing Low Cost Carrier (LCC) segment of the aviation market.

Aero-Care is widely recognised as providing unmatched levels of service to its customers by providing them with a competitive and commercial advantage in terms of cost and performance. Aero-Care is now the most experienced outsourced Flight Support organisation in the Australian aviation industry.

It’s major customers are generally serviced under long term contracts and include Virgin Australia, Jetstar, Pacific Blue, Qantas, Emirates, DHL and SkyWest Airlines.

At investment, Aero-Care operated from 16 airport locations across Australia, with revenues well diversified servicing all major airports including, Perth, Adelaide, Hobart, Melbourne, Canberra, Sydney Domestic & International, Coolangatta, Townsville and Cairns.

During Next II’s ownership, Aero-Care grew significantly via acquisition and the winning of many new contracts servicing additional airports and airlines such that by June 2014, it employed over 1,500 staff and serviced major domestic and international airlines across 23 airports in Australia and New Zealand.

In June 2014, Next II sold Aero-Care to Archer Capital Fund 5 for a media reported enterprise value of approximately $200m.

The Aero-Care exit, delivered Next II investors including VPEG a 52% IRR on the base enterprise value, increasing to 54% IRR should the earn out amount be paid on achievement of agreed earnings in FY16.

Next Athleisure is comprised of Glue Store (a leading street wear retailer), Trend Imports (an apparel wholesaler) and Topshop (a majority interest in the company with the franchise rights to operate the Topshop business in Australia).

Glue is a youth-oriented retail apparel businesses operating 32 stores and a  rapidly growing web business. The stores are primarily located in metropolitan areas of NSW, ACT and VIC, retailing a portfolio of international and domestic third party brands, Glue-exclusive international brands and a number of owned domestic brands.

Trend Imports is an apparel wholesaling business which wholesales the Henleys, Le Coq Sportif, Cappellini and Gas menswear brands and the Nude Lucy, Lulu & Rose and Henleys womenswear brands.

Topshop (Top Australia) holds the licence to operate the Topshop and Topman brands in Australia. Topshop is a highly successful, youth-oriented high-street fashion brand which has successfully grown from a base in the United Kingdom to operate in excess of 400 owned and franchised stores around the world. The first Topshop store in Australia opened in Melbourne in early December 2011.

Go Bus. In May 2012, Next Capital II led the acquisition of the New Zealand bus company GoBus.

At the time of the acquisition GoBus provided urban, school and charter bus services to four of the six largest public transport markets in New Zealand (Hamilton, Napier, Tauranga, and Christchurch), with a strategy to expand into the remaining key markets (Auckland, Wellington).

During Next Capital’s ownership GoBus achieved an EBITDA CAGR of 38%, having successfully delivered growth initiatives including:

- Acquisition of two major South Island businesses to build out GoBus’ South Island presence;

- “Tuck-in” acquisitions of a number of smaller operators, leveraging existing operational infrastructure;

- Successfully tendering for Special Needs School contracts across New Zealand, including a key entry point into the Auckland market; and

- Like-for-like performance improvement driven by enhanced operational efficiency.

On 11 August 2014 Next Capital entered into a binding agreement with an Iwi Consortium for the sale of GoBus. The transaction completed on 30 September 2014, delivered a 36% IRR over a holding period of just over two years.

The top quartile return delivered by this investment was the result of the strong earnings growth within the business during Next II’s two year investment period, with EBITDA increasing from NZ$13.2 million to NZ$24.3 million.

Scottish Pacific Debtor Finance.  On the 1st of July 2013 Next Capital II, in a consortium with co-investors and management, purchased Scottish Pacific Debtor Finance for a (media) reported $100 million.

Established in 1988, Scottish Pacific Debtor Finance is Australia and New Zealand’s largest specialist provider of debtor finance services, specialising in invoice discounting and invoice factoring, specifically tailored for small and medium-sized enterprises. Scottish Pacific have offices in all main land state capitals of Australia and New Zealand.

Australia’s debtor finance industry turns over more than $62 billion each year and has had compound annual growth of over 20 per cent since 1996.

At the time of Next Capital’s investment, it was reported that Scottish Pacific handled more than $3.5bln in invoices annually and had projected fiscal 2013 earnings before interest and tax of about $15m, on annual sales of about $200m.

During the investment period, Next Capital implemented a range of material growth initiatives including broadening the funding base to establish a sustainable, diversified and lower cost platform for its products.

On 31 December 2015, Scottish Pacific acquired the Australasian operations of UK-based Bibby Financial Services, the second largest independent debtor finance business in Australia. The acquisition was highly complementary to Scottish Pacific delivering strategic and financial outcomes including incremental earnings and cost savings from operational synergies. The acquisition also materially increased the scale of the business providing enhanced client funding flexibility at a lower cost.

In May 2016, Scottish Pacific acquired the outstanding loans and arrangements with clients of GE Commercial Debtor Finance and Suncorp’s Debtor Finance portfolio. These transactions also facilitated new referral arrangements between Scottish Pacific and two leading Australian banks.

In June 2016 Next Capital announced that Scottish Pacific had executed an underwriting agreement with Citigroup and Goldman Sachs for an Initial Public Offering (IPO) to formerly list Scottish Pacific shares on the ASX, which occurred on 13 July 2016. The IPO was priced at 14x FY17 NPAT and $3.20 per share.

The IPO valued ScotPac at 14 times forecast 2017 financial year net profit resulting in a market capitalisation of approximately $440 million.

Next II sold 50% of their shares at the float with the remainder to be held under escrow until Scottish Pacific’s 2017 financial year results are released in August 2017, with the potential for an early release of 25% of the escrowed shares following the half year results release in February 2017.

The Scottish Pacific float resulted in a top quartile return to Next Capital II investors, including VPEG, with VPEG receiving its share of the IPO proceeds on 13 July 2016, which will be distributed to VPEG shareholders, in the December 2016 quarter.

Under the ownership of Next Capital, Scottish Pacific Group grew to become Australasia’s largest non-bank debtor finance provider and is the clear market leader in the SME finance sector, with more than 1600 clients in Australia and New Zealand, handling more than $10 billion of invoices each year and providing debtor and trade finance funding exceeding $800 million.

Hirepool. On 31 August 2017, Next Capital II completed the divestment of underlying investment company Hirepool to ROC Capital Partners.

In July 2006, Next Capital I invested A$27 million to purchase 75% of New Zealand equipment rental and plant management services company Hirepool. The total transaction value was A$139 million. Next Capital II invested a further $7m in May 2013 to fund the integration of Hirequip, the number two player within the industry.

Hirepool operates from over 50 location across New Zealand providing it’s customers with the largest and most diversified fleet of equipment in the country.

Since acquisition, the business has more than doubled earnings through:

- The acquisition of the number two hire company, Hirequip, in May 2013 and full integration into Hirepool to create New Zealand’s leading industry hire equipment company. This included implementation cost synergies enhancing asset performance.

- 11 bolt-on accretive acquisitions across New Zealand, adding both geographic and product diversification, for example trucks and commercial vehicle hire (HendersonRentals) and road barricade hire (Barricading solutions);

- Several greenfield initiatives, including the establishment of Hirepool Energy Division, a product extension into power rental services; and

- Initiating internal control measures to reduce the cost base of the group, particularly around systems, organisational structure, pricing, asset management and procurement.

The sale of Hirepool to ROC Capital Partners was completed in late August 2017 with VPEG’s share of the sale proceeds received in early September 2017.