Prudence from the world of private equity. Shareholders in TI Fluids Systems (TIF) will no longer receive a final dividend of 5.2p a share at the end of the month, after its principal shareholder voted against the proposal at the AGM.
The group, a specialist automotive engineer serving the light vehicle industry, had posited in a Q120 trading update that a full-year payment was justified given its “strong liquidity and financial position”, but dissenting shareholders, chief among them US private equity giant Bain Capital, thought otherwise.
TI Fluids closed out 2019 with €411m (£364m) in cash and net debt equivalent to 76 per cent of net assets, virtually none of which is due this year. Management subsequently decided to take a ‘belt and braces’ approach in the face of market disruption, drawing €146m from the group’s revolving credit facilities, which left a cash buffer in the region of €600m at the end of March.
The engineer could certainly have funded the dividend (£27.1m) without too much trouble, but would it have sent out the wrong signal given the outlook for the remainder of the year? Bain Capital, a key player in an industry sometimes dubbed ‘red in tooth and claw’, reversed its original voting intention due to what a spokesperson for the private equity firm described as “unprecedented circumstances we are operating within -- including employee sacrifices”. TI Fluids has taken advantage of government furlough schemes, while reducing some salaries and initiating a hiring freeze.
Bain Capital had the option of abstaining from the vote, but decided that a final pay-out would not have been appropriate given the implications for shareholders. The move provides some good PR for the private equity industry, but it also reflects a colder commercial reality. IHS Markit (NYSE: INFO) is forecasting that global sales and production of light vehicles will fall by around 22 per cent in 2020, “with risk for further deterioration”. Perhaps now is not the right time to be in a giving mood.
