Slattery hopes Claret Capital will soar again with return to aircraft sector

BUSINESS AGENDA:Despite losing over €3m last year, finance firm's chief is optimistic about his new airline business, writes CIARÁN HANCOCK

SITTING IN his Ballsbridge headquarters, Dómhnal Slattery doesn’t try to sugar coat the scale of the hit his investment group Claret Capital has taken over the past 18 months.

“Last year, it didn’t matter where you were, what you were in and in what currency,” he said bluntly. “Everything got hit. The value of every single asset in the world just got creased.”

Claret wasn’t spared, losing €3.42 million in 2008, according to accounts just filed. Its office in New York and operation in Philadelphia have been closed and the headcount has declined from a peak of 35 to 13. In the first quarter of this year, Senator Feargal Quinn’s family injected €2.5 million into the business and now holds a 25 per cent stake.

Having invested €450 million in equity in 27 private equity deals around the world since 2006, Slattery has decided to go back to his aviation roots – structuring debt and leasing aircraft. The heyday of cash-rich Irish investors is over, ended by the global credit crunch and a dire domestic recession.

Speaking exclusively to The Irish Times, Slattery admitted it has taken a toll on him personally.

“There’s been several effects. It’s been a humbling effect as to what can happen to your world when you’ve no control over the broader macro .

“The second is that diversifying your investments is definitely the way to go.

“I look back and say thanks be to God we’d 27 different investments in a bunch of different industry sectors because if we’d gone gangbusters into one particular sector, we’d have been in serious trouble.”

Slattery accepts that the decision early in 2008 to open a base in the United States was a bad call. “I made a fundamental error. I reckoned, naively, that the financial correction that was taking place at the time was a six to nine-month typical re-engineering.

“We took a view that it would be an opportunity for the firm to . . . use the weak backdrop to invest into that aggressively.”

Paul Geaney, son of deceased former Elan chief executive Donal, was hired to lead the US operation, along with “high-calibre” investment bankers. The plan was to raise $250 million that would be spent buying mid-market companies on the cheap.

“You couldn’t raise 50p,” Slattery said. “Overnight, everything changed. And we had to move very quickly and make some brutal fundamental decisions to say our contrarian growth strategy was based on a strategic error. Mine.”

In parallel, many of Claret’s investments were hitting the buffers. It wrote off its €2 million investment in Irish television station Channel 6, which is now owned by TV3.

Blue Ocean Wireless, a maritime telecoms company founded by Slattery, was going well last year until it “hit a cliff”, the Ennis-born executive said. Its business model is built around merchant seamen using their mobile phones to ring home at a low cost.

“It hit a cliff because half of the world’s container ships were in dry dock,” he explained. “So we had to scramble and re-engineer the balance sheet quickly.”

Elsewhere, Alias, a reinsurer, is “just knocking the lights out” while HCA, the world’s biggest hospital operator, is “talking about doing an IPO next year”.

Claret co-invested in the National Pizza Company with Merrill Lynch. Slattery said this is “going gangbusters”. “It’s almost recession proof. Cheap pizzas.”

Claret also has an interest in a plastics manufacturer in Mexico that is “doing well” as commodity prices have dropped while it has got its money back on car hire firm Hertz and still retains a small shareholding.

But it has taken a 45 per cent dilution on its stake in Barry O’Callaghan’s Education Media Publishing Group, where Claret invested $50 million.

“Who could have foreseen that the US states would stop buying text books, literally,” he says. “It’s never happened in 100 years.”

An investment in a casino and leisure business in Macao is “treading water”, Slattery said.

Slattery is closing a €6 million fundraising for JetBird, his low-cost executive jet airline, that will allow it takeoff around the end of September. “Trying to raise €6 million today is equivalent to raising €60 million 18 months ago, literally,” he says. “For my own personal reputation, getting JetBird launched is absolutely critical.”

Claret’s investment in the five-star St Regis Hotel in Washington is also “challenged” with rumours that it was up for sale.

“We had expressions of interest in the asset from a Middle Eastern buyer earlier this year. We explored the discussions with them, but it didn’t conclude, so it’s definitively not up for sale. We’ve just appointed CBRE as our asset manager in the US.”

Claret’s business model, according to Slattery, was never based around charging chunky recurring fees to investors.

“We charge a relatively small fee upfront for a structured transaction. Because we wanted to position ourselves as being investor aligned.”

Slattery and his fellow partners invested in every deal, with a view to taking a cut of the profit when the investments were crystalised.

His exposure is several million euro.

“Not tens but a number that would have represented a significant part of my personal balance sheet,” he admitted.

“The reason for that was that I felt that you can’t be enticing other people’s money into transactions if your own dough isn’t on the line first. And it was a major differentiator for Claret Capital.”

What of the future for Claret?

This has involved a return to Slattery’s aircraft leasing roots. He started with Tony Ryan’s GPA before setting up an aircraft leasing company, International Aviation Management Group.

He sold that business to Royal Bank of Scotland for €25 million in 2001 and spent three years with the bank building it into a bigger entity. He hopes to leverage those past relationships for the new business.

Claret is providing debt advisory services for airlines and lessors.

“We have a mandate that we’re working on right now. It’s $200 million, a US private equity firm, to finance aircraft that are delivering in 2010. “That’s keeping a team of about three people occupied.”

Slattery is planning to launch his own aircraft leasing business. “We are about 90 days away from launching our own platform,” he said.

“We’ll probably build a new team of 20 core executives,” he said. “We’ll have a small team in Hong Kong and in the US.”

He said the current weakness in aviation has created a “sweetspot” for the business. He is focusing on 737s and A320s and says there are plenty of airlines in growth mode.

“I can see us getting this launched,” he said.