VIRGIN REBIRTH? - ICAEW.com
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Sir Richard Branson’s empire
has been battered by the
COVID-19 pandemic, but
he’s on the hunt for his
next big opportunity
VIRGIN
REBIRTH?
Sir Richard Branson’s business has many tentacles,
and plans for a new investment vehicle to target
post-pandemic opportunities. David Prosser looks
at a portfolio that has had a mixed crisis
N
obody could accuse Sir Richard Money raised but not invested within
Branson of overlooking Albert two years will be returned. It’s a pretty
Einstein’s advice that “in the midst defiant move after an intensely difficult
of every crisis lies great opportunity”. summer for Virgin Group.
After months of firefighting at a host of Virgin itself is effectively a giant
his Virgin Group businesses caught in the investment vehicle – a family office that
eye of the COVID-19 storm, the billionaire looks after the wealth of the Branson
is still on the lookout for the next big thing. family. Branson’s day-to-day involvement
In September, Virgin Group quietly filed is limited – the group is run by CEO
a special purchase acquisition company Josh Bayliss – but his name and personal
(SPAC) with the Securities and Exchange brand runs through the group. The aim is
Commission ahead of an NYSE listing to build businesses, often with partners,
that aims to raise up to $480m. and then partially or wholly divest, with
Virgin is one of a number of investors the proceeds recycled into the next
right now that are launching so-called opportunity. The group recently used
‘blank-cheque companies’, with war Rothschild, Barclays, Greenhill and RBS as
chests ready for rapid deployment as advisers. In addition, a brand-licensing
deal opportunities present themselves. operation provides recurring revenues,
Virgin’s SPAC doesn’t yet have any smoothing the inevitably lumpy rewards
particular transaction in mind, but the of a buy, build and sell strategy.
group thinks the pandemic will leave “We see ourselves as patient and
fundamentally strong businesses in its long-term capital and have held
favoured consumer sector on attractive investments in some companies for With its many aircraft grounded and cruises
valuations. It wants to be ready to strike. more than 20 years, and in a few cases cancelled, Virgin’s revenues have plummeted
RECENT DEALS 2019 – Flybe: UK airline 2018 – Virgin Money banking 2015 – Virgin Mobile India
bought by Virgin Atlantic and group sold to CYBG for £1.7bn sold to Tata Teleservices
2020 – Virgin Australia: consortium for £2.2m. Flybe
Australian airline sold out of collapsed in March 2020, but 2017 – Hyperloop One: 2014 – Virgin Mobile France
administration to Bain Capital the business and assets were Virgin Group invests sold to Numericable-SFR
bought out of administration undisclosed sum in high- for £265m
2019 – Virgin Galactic: space by Thyme Opco in October tech transport group
exploration company floated 2013 – Virgin Media sold to
on NYSE via merger with 2018 – Virgin Cruises 2016 – Virgin America: Liberty Media for £15bn
Social Capital Hedosophia, launched in $2.5bn joint US airline sold to Alaska
valuing company at £1.8bn venture with Bain Capital Air Group for $4bn
28 NOVEMBER 2020 CORPORATE FINANCIER
INNOVATION & SUSTAINABLE RECOVERY
for more than 30 years,” explains Virgin “We see ourselves as
Group’s CFO Amy Stirling.
But, as for so many others, COVID-19 has patient and long-term
been a black swan event. “We have felt this capital and have held
impact across our investee businesses
operating in the travel and leisure sector in
investments in companies
particular, like many other companies in for 20-30 years”
these industries,” concedes Stirling.
Amy Stirling,
CFO, Virgin Group
SHUTTING UP SHOP
Back in March, as Europe and the US
followed parts of East Asia into lockdown,
many of Virgin’s businesses faced a ownership models make for tough
near-total collapse in revenues. Branson’s conversations about who should shoulder
airlines, Virgin Atlantic and Virgin Australia, the burden of shoring up troubled
were grounded. His cruise company’s ships businesses. While Branson initially hoped
– a relatively new venture – were stuck in for government support, particularly for
port. His hotels operation shut up shop. his airlines (see box, page 30), it quickly
The gyms had to close. emerged none would be forthcoming.
Moreover, Branson’s room for manoeuvre The initial response was to commit
was limited. In many cases, Virgin Group $250m of his own money to Virgin. In
owns minority stakes in its businesses, April, Branson penned an open letter to
making it difficult to move money and employees around the world promising
assets around the portfolio. Shared to “help our businesses and protect jobs”,
even though “there is no money coming
in and lots going out”. He offered to
mortgage his luxurious Necker Island
in the Caribbean’s British Virgin Islands
2013 – Virgin Games sold to should it prove necessary.
Gamesys for undisclosed sum Very quickly, however, it became clear
this extra cash would be nowhere near
2012 – Northern Rock: state- enough for many of Virgin’s businesses to
owned bank bought by Virgin survive the crisis. Virgin Australia went into
Money for £747m administration the day after the letter.
ALAMY, GETTY IMAHES
2011 – Virgin Australia founded HELP FROM SPACE
through merger of Virgin Blue, In July, Branson announced that he was
V Australia, Pacific Blue and selling a £396m stake in his space tourism
Polynesian Blue business Virgin Galactic – relinquishing
ICAEW.COM/CFF 29
INNOVATION & SUSTAINABLE RECOVERY
equity group Bain Capital bought the
company out of administration, but
the deal effectively wiped out the
airline’s previous equity investors.
Meanwhile, Virgin needs the rest of
the proceeds of its Galactic share sale
to shore up other group companies. Its
cruises and hotels businesses are under
particular pressure, with international
travel and tourism still so difficult, while
Virgin Active has also struggled during
lockdown. “These sectors remain under
severe pressure as further lockdowns
are either considered or implemented
across the globe,” warns Hunter.
This all adds up to further headaches
for Branson and the Virgin Group – and
Virgin Group has relinquished majority majority control in the process – with underlines the gutsy nature of its SPAC
control of its space tourism business,
Virgin Galactic. The funds from the £200m of the cash to be invested in Virgin listing. But the entrepreneur has never
sell-off will be used to support other Atlantic. He also secured £200m of support been one to dwell on problems or
branches of the group hit hard by the
unprecedented impact of the pandemic
from the US hedge fund Davidson failures. The failure of Virgin Cola and
Kempner, and a further £400m in the the demise of Virgin Trains are problems
form of deferred payments to creditors. he moved on from.
That should be enough to buy the The family-office approach, with its
airline some time, says Richard Hunter, mix of direct investment and licensing,
an analyst at the stockbroker Interactive will therefore continue. “In the past,
Investor. However, the short-term we have tended to invest early and
outlook for the sector looks bleak. build companies by bringing in a
“There is certainly no guarantee of a management team and partners to
return to form this winter and potentially expand the businesses, sometimes by
even in the earlier stages of 2021, with buying companies in new markets,” adds
£396m
pressure remaining on revenues and Stirling. “Over the years, we have also
costs,” he warns. sold our stakes in Virgin companies to
Virgin failed to salvage its stake in finance new ventures and have built up
Branson’s Virgin Galactic stake sold in July 2020 Virgin Australia. In August, US private a portfolio of brand-only companies.”
BRANSON’S PICKLE Australia appear to take the view that back into the NHS. It doesn’t help that
someone with so much wealth should Branson lives as a tax exile – his Necker
When COVID-19 struck, Virgin Group’s be funding their own bailout. Public Island home is in the British Virgin
airline businesses, Virgin Atlantic and opinion is no doubt a factor. As Islands – though he’s always said he lives
Virgin Australia, were caught in the eye Bloomberg analyst Chris Bryant puts there because his family loves it, rather
of the storm. Richard Branson was quick it: “The consequence of stamping the than for tax reasons.
to call for state support for the industry, Virgin name on everything, often in Still, while Virgin Group eventually
citing the potential for devastating job return for no more than a licensing got no special help for its airlines,
losses and diminished competition. fee, is that the public think he owns Branson hasn’t done too badly on
However, his pleas fell on deaf ears. half the economy and is in no need the bailout front. In 2018, the UK
One problem was that the UK and of a handout.” government agreed to write off more
Australian governments largely framed Such criticisms overlook the likely than £2bn that Virgin Trains – a joint
their responses to COVID-19’s economic reality that most of Branson’s wealth venture with Stagecoach – had agreed
impacts with generalised support is illiquid, but controversies haven’t to pay to run the East Coast train line.
schemes, rather than industry-specific helped his cause. Virgin Atlantic was
bailouts – let alone rescues for individual criticised for asking staff to take time off
companies. Both governments – and the with no pay during the crisis, though it
airlines’ rivals – also pointed out that the insists this was an initiative supported by
two businesses were loss-making even employees and their unions. The group
before the pandemic. was also accused of exploiting the NHS
A second factor is that while Branson when Virgin Care took legal action after
is asset rich – Forbes puts his wealth at failing to win several contracts. Again,
£3.3bn – he seems to be short on Virgin denies any wrongdoing, arguing
political capital. Ministers in the UK and that all monies have been ploughed
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