Riverdeep owners plan to refloat within two years

8 Mar 2004

12 months after going private as part of a US$376m management buyout (MBO) it has emerged that the owners of Irish e-learning firm Riverdeep, Barry O’Callaghan and Pat McDonagh, plan to buy out other investors in the company – including Michael Dell’s private equity arm and venture capital firm Alchemy – and pave the road for a return to the stock market within two years.

According to various reports, Riverdeep’s present management plan to instigate a number of financial transactions as well as a restructuring move that will give them greater control of the company as well as double the e-learning firm’s valuation to around €688m.

It is understood that O’Callaghan and McDonagh are exercising an option to buy out Alchemy, financier Pierce Casey and Michael Dell’s MSD by giving them US$95m for their 28pc stake in Riverdeep and a further US$121m repayment of a loan note that will give both MSD and Alchemy a US$100m profit on their investment in Riverdeep.

As part of a restructuring, both O’Callaghan and McDonagh have agreed to invest €36m in fresh equity into the company. It is understood that Riverdeep is also set to issue US$250m worth of bonds and take out a US$75m loan to refinance its US$168m bank debt and US$120m in shareholder loans.

Following the restructuring McDonagh and O’Callaghan will become the largest shareholders in the company, each owning 31.7pc of Riverdeep.

It is understood that Riverdeep’s earnings in 2003 rose substantially in 2003, compared with 2002, due largely to cost cutting. As well as this, O’Callaghan has reduced staff levels at the company from 586 to 400 and has cut the company’s product range from 1,800 to 800 as well as signing high profile software partnership deals with prominent US companies, including DC comics and Sprint Telecom. O’Callaghan has also succeeded in cutting operating expenses from US$32.6m in the first quarter of last year to US$26.9m in the last quarter.

Earnings last year at Riverdeep doubled to US$58.9m from US$30.8m a year earlier. It has been predicted that these earnings will grow to US$71.1m this year and US$76. 8m next year.

By John Kennedy