Tight financial discipline and ‘sweating assets’ are two things private equity companies normally do very well with their investments, whether in education or plastic widgets. So it comes as a surprise that Veronis Suhler Stevenson, owners of Granada Learning (GL), has just announced an operating loss of £6.8m. This is a substantial sum for any business, let alone one owned by a company which describes itself as, ‘a leading private equity firm dedicated to the media, communications, information and education industries’ who ‘invest with outstanding operators to build the next generation of leading middle-market media companies’.

Managing to lose this much money so quickly, after paying ITV somewhere between £35-53m for the privilege, will be difficult for Managing Partner Marco Sodi to explain to the Limited Partners who have invested in VSS funds. After buying GL, VSS recouped some of its outlay by selling David Fulton to Informa for £4.6m and Letts and Leckie & Leckie to Huveaux for £12.4m. When the sale of GL was announced the headline figure quoted was £53m but what VSS actually paid was £35m upfront and another £18m dependent on sales and performance targets being met. As it’s very unlikely these were met, after banking the proceeds from asset sales, it looks like VSS’s current investment in GL has a rough book value of just £18m.

As we wrote last year, all that is left at GL is nfer Nelson, Blackcat and SMERC. Even if you add in VSS’s other educational publisher Sherston, you still don’t have a business that is particularly attractive in terms of growth or scale.

In reality GL may be doing better than numbers released to the media show and you only have to look back to 2005 when the company lost £23.2m. However, since then VSS has sold off what we saw as the best bits of the company to Huveaux. If Huveaux can manage to pay a hefty price and still manage to grow and make these businesses profitable, it’s a mystery why GL’s cost of sales should have risen by an eye watering 30%!

The best hope for Sodi and co seems to rest with Kit van Tulleken making this pig in a poke look like an attractive buy. It will be a hard task - as one potential investor said, ‘a pig in a party dress is still a pig.’

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