FT: PAI Pumps £20 million into Kwik-Fit

PAI, the French private equity fund has owned Kwik-Fit since 2005, is reportedly planning to inject £20 million (22 million euros; $33 million) into the UK’s leading tyre retailer to avoid a banking covenant breach, according to a report in the Financial Times. Kwik-Fit, which was last sold to PAI for around £800 million after seeing off fellow bidder Bridgestone, has reportedly seen a slight slowdown in sales growth in the recession and been hit by foreign exchange rates. Nevertheless the Edinburgh-based business is still expected to generate turnover of more than £900 million this year, that’s a 7 per cent growth in like-for-like sales. EBITDA is expected to drop 3 per cent to £96.3 million.

Financial Times’ report explains that Kwik-Fit’s main problem is the PAI acquisition was financed partly debt in euros and a growing share of its profit is in pounds. This effect has been amplified by the fact that Kwik-Fit sold the lossmaking German Pit-Stop chain earlier this year. All this means the company has strayed close its covenants, a problem that can be solved with the so-called £20 million “equity cure.”

According to FT, Kwik-Fit is part of PAI’s earlier 2.7 billion euro fund, which it raised in 2005. The French private equity group has already been repaid its initial investment in Kwik-Fit by taking on extra debt at the company to pay itself a dividend in 2007.