Retailer reorganises and resurges back to profitability
A long-established retailer of furniture with a recognised brand name was in serious financial difficulties due to a number of its under-performing stores.
The company had previously been part of a much larger organisation that had been broken up and sold. It had a number of stores in geographically diverse areas that required two distribution centres for its stock.
Coincidentally, the under-performing stores were in an area where they and the distribution centre that served them could all be isolated and sold. The stores and the distribution centre occupied leased premises.
Due to the poor performance of these stores the company had incurred substantial arrears of payments to the Inland Revenue and Customs & Excise. Cashflow was a serious problem. With the assistance of an Insolvency Practitioner arrangements were made for the company to be placed into Administration.
It was recognised that a prolonged Administration would be disastrous for the business. So the Insolvency Practitioner agreed to market the business of the company for a short period of time - two days - and thereafter to consider a sale to the existing management team, unless a sale on more advantageous terms could be arranged with another buyer.
The management team was able to raise £500,000 from its own resources and funding of £1m from a private equity provider. (The private equity funds were structured as deep discounted bonds and unsecured shareholder loans, both yielding 15% in equal amounts.)
This was sufficient to enable the team to purchase all the profitable sites and one distribution centre from the Administrator. Stock was acquired at a discounted value, including the stock from the under-performing stores.
Sales then took place to generate cash and this enabled the 'Newco' to purchase new stock and left it with sufficient funds to make good headway into the repayment of the private equity funding.
With the support provided from the use of the Insolvency Administration process, coupled with the organisation of the funding arrangements for the 'Newco', the business was rescued and able to return quickly to generating positive cashflow and profits.....
