The new structure takes the firm out of private equity ownership

Banks have taken over control of Innovation Group from its private equity backer Carlyle Group, it was confirmed to Insurance Times today. 

In an apparent debt-for-equity swap, creditor banks Barclays, Barings, HSBC, Kartesia and UniCredit have taken Carlyle’s stake in the business, and provided £50m in funds, slashing the group’s debt by 25%, according to a reports.

Equity will be transferred to a new holding company which will have overall control of Hampshire-based Innnovation Group. 

“Innovation Group is pleased to confirm that it has agreed a full capital reorganisation, with support from all of its lenders, which will bolster and accelerate the Company’s plans for growth,” it said in a statement.

”The business was trading satisfactorily but needed incremental new funding in order to make necessary investments in the business,” it added.

Matters came to a head in September last year, when Carlyle said it would no longer provide funds to the company as it had previously done twice before. The existing lenders provided an emergency bridging loan of £10m to cover the business until December, which was subsequently extended by three months.

Innovation Group said it expects the new funding to allow it to accelerate its growth, particularly through investment in Gateway, its new global technology platform.

The company’s precarious situation had been highlighted in a 2017 Companies House filing, which stated that: “The group and the company do not have sufficient funds to meet its liabilities for a period of at least 12 months.

“Furthermore […] forecasts indicate that there is uncertainty about its ability to maintain compliance with covenants for a period of at least 12 months. As a result, the directors of Tiger Topco Limited [the Carlyle Group’s holding company for Innovation Group] have approached both the ultimate shareholder and lenders under the senior debt facilities with a view to amending the group’s capital structure and existing financial liabilities.”

The Carlyle-backed parent company promised ongoing support on the condition that the refinancing attempt was successful.   

EBITDA for 2018 is yet to be published, but it was £30.8m for 2017, and £21m for the previous year. Total debt now stands at £300m, including the £50m supplied by its lenders. Innovation Group added that leverage ”has been reduced to a sustainable level”. 

Innovation Group’s court battles

Innovation Group was last year embroiled in a court case between Co-op and IBM, for which it was acting as a subsidiary. Co-op has blamed Innovation Group software for its tech upgrade “disaster” in a bitter £130m court battle with IBM.

IBM accused Co-op of failing to pay up a £2.89m bill for using its software licensing. But Co-op hit back, accusing IBM’s sub-contractor Innovation Group of not being up to scratch. 

Founded in 1996 as Merlinace, the Innovation Group, as it became known in 1999 following the acquisition of MotorCare, became a public company in 2000. It was taken private again after it was bought by Carlyle in 2015 for £491m.

It continues to be led by Tim Griffiths.