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Home , Flybe, Northern Rock, Richard Branson, Virgin Active, Virgin Atlantic, Virgin Australia

Sir ’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

obody could accuse Sir Richard Money raised but not invested within N 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 . 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 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, , 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 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 – : UK 2018 – banking 2015 – bought by and group sold to CYBG for £1.7bn sold to Tata Teleservices 2020 – Virgin : consortium for £2.2m. Flybe Australian airline sold out of collapsed in March 2020, but 2017 – Hyperloop One: 2014 – administration to the business and assets were Virgin Group invests sold to -SFR bought out of administration undisclosed sum in high- for £265m 2019 – : space by Thyme Opco in October tech transport group exploration company floated 2013 – sold to on NYSE via merger with 2018 – Virgin Cruises 2016 – : 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, SHUTTING UP SHOP CFO, Virgin Group 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 , Virgin Atlantic and , 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 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 2013 – sold to should it prove necessary. Gamesys for undisclosed sum Very quickly, however, it became clear this extra cash would be nowhere near 2012 – : state- enough for many of Virgin’s businesses to owned bought by Virgin survive the crisis. Virgin Australia went into Money for £747m administration the day after the letter.

2011 – Virgin Australia founded HELP FROM SPACE through merger of Virgin Blue, In July, Branson announced that he was , Pacific Blue and selling a £396m stake in his

Polynesian Blue business Virgin Galactic – relinquishing IMAHES GETTY ALAMY,

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 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 from the US hedge fund Davidson failures. The failure of Virgin and unprecedented impact of the pandemic Kempner, and a further £400m in the the demise of 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 pressure remaining on revenues and Stirling. “Over the years, we have also costs,” he warns. sold our stakes in Virgin companies to £396m 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 took legal 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

30 NOVEMBER 2020 CORPORATE FINANCIER