Virgin sale: Bain Capital, Cyrus could pair up with Richard Branson’s Virgin Group

Sir Richard Branson could return as a stakeholder in the local Virgin brand. Picture:Getty Images

There are expectations that Bain Capital or Cyrus Capital Partners will pair up with Richard Branson’s Virgin Group should either advance with their bids for Virgin Australia.

Bain Capital and Virgin Group have a joint venture in the cruise industry with Virgin Voyages, while New York-based hedge fund Cyrus, founded in 1999 by Stephen Freidheim, invested with Sir Richard in Virgin America in 2005 after Sir Richard established the airline.

However, the big question is whether any party wants to pay Sir Richard about 1 per cent of annual revenue for a royalty to secure the Virgin brand. They may be persuaded if he takes a minority equity stake in a deal, which he typically does with an entity that holds the Virgin name.

Global hedge fund Cyrus Capital Partners is a long-time investor with Virgin Group, and the pair may already be bidding together.

Cyrus has offices in New York and London and is mostly dominant in the North American and European markets, but has had little to do with the Australian market so far.

Some question whether Cyrus would have a large amount of financial firepower for a bid with only about $4bn under management, but some say the equity cheque for any competing party may not be that large.

Existing Virgin Australia shareholders are expected to have their equity value wiped, while debt is likely to be written right down.

Yet Cyrus may choose a partner in its pursuit of Virgin Australia such as Bain Capital as it moves through to the second round of the contest to buy the collapsed airline. The expectation is that the final four shortlisted groups to buy the airline may form into two consortiums.

Bain Capital’s private equity arm and credit arm are working together for their approach. It is advised by former Jetstar boss Jayne Hrdlicka and KordaMentha.

The US-based Indigo Partners, which is also on the shortlist, is understood to have been circling Virgin Australia for about four years.

Australian-based BGH Capital, headed by former TPG Capital executives Ben Gray and Simon Harle and ex-Macquarie Capital boss Robin Bishop, is shortlisted and is partnering with AustralianSuper. It has Moelis and law firm Arnold Bloch Leibler as its advisers.

Final bids are due around June 12, with a sale announced at the end of next month.

Voluntary administrator Deloitte was understood to have finalised the shortlist on Monday morning for the carrier that collapsed amid the COVID-19 crisis owing close to $7bn.

Out of the contest is Brookfield, which is recently said to have lost its partner Macquarie Group, and Indian-based InterGlobe Aviation, which is a major shareholder of low-cost Indian carrier IndiGo.

The situation is one where firms that have not made the latest cut could re-emerge in the competition, potentially working with a shortlisted bidder.

Last year, Cyrus built stakes in the listed British business Stobart Group, which is an infrastructure, aviation, energy and civil engineering company.

With the Stobart Group and Virgin Atlantic, Cyrus invested in the now-failed European airline Flybe. It has also offered funds to Norway’s paper mill company Norske Skogindustrier, which recently sold forestry assets in Tasmania.

It is understood parties that submitted indicative offers for Virgin Australia on Friday were asked to provide an enterprise valuation. InterGlobe is said to have declined as it thought there was a lack of information in the data room to do so.

It will be interesting to see if Wesfarmers remains in the picture, with its interest said to centre on the Virgin Velocity frequent-flyer program. However, some suspect such programs will lose some of their shine in the next few years.