UK phone maker WileyFox appoints Quantuma as administrator

12 February 2018 Consultancy.uk

Following a catastrophic 2017, which saw numerous projects either delayed or jettisoned, British-based mobile phone maker WileyFox has entered into administration. The beleaguered group’s restructuring will be overseen by corporate recovery consultancy Quantuma.

The UK smartphone market has been booming over recent years. In 2017, the British market reached a penetration rate of 85% of the adult population, and consumers now spend so much time on their devices, that multiple think-pieces are even warning of spiralling levels of “smartphone addiction”, and the potential impacts this could have on business and society.

Despite this, a number of factors mean that many smartphone producers could face a challenging future. Even technology giants Apple reported a fall in sales volume in 2017 – albeit one balanced by a rise in revenue thanks to the widely criticised $1000 price tag for the latest iPhone – as competition in the ever more crowded sector sees market share split between a growing number of companies. The market for providing budget smartphones became particularly diluted, as firms like Huawei, Alcatel, and a whole host of companies sought to undercut the likes of Apple.

UK phone maker WileyFox appoints Quantuma as administrator

In this increasingly combative sector, Britain’s only mass market phone maker, WileyFox, has entered into administration, a mere three years after its launch. The company which opened for business in 2015, was quick to position itself to cater to the growing trend of non-contract handsets, with its series of low-cost devices, including its Storm and Swift models. A turbulent 2016 saw the firm forced to jump quickly away from the Cyanogen OS, after the operating system collapsed amid licensing issues.

In Spring 2017, WileyFox adopted a more standard Android alternative for some devices, although more problems led to a two week delay for the launch of its new Windows-based handset at the end of the year. However, what really seems to have compounded the smartphone producer’s woes is their primary source of funding being severed at the turn of the year. WileyFox’s holding company had largely been backed by Russian bank Promsvyazban (PSV), which received a bailout from Russia’s Central Bank, just as WileyFox struggled to release its WileyFox Pro device. As a result of the bailout, special measures were placed on PSV, which restricted its lending outside of the country – leading to WileyFoxes working capital being ‘temporarily suspended’, with no resolution in sight.

No further details have yet been made public. However, a Reddit user named 'Wileyfox-Jack' has widely been cited as saying that Wileyfox smartphone users are likely to be stranded without any future OS updates "unless something drastically changes", including the new Wileyfox Add-X range, a series of budget mobiles which feature adverts on their lock screens, to help bring down prices sustainably, which had recently been listed as Amazon's 'Innovation of the Month'.

Quantuma appointed

Michael Coombes, the group’s CEO, confirmed that the vast majority of its employees have subsequently been made redundant. Following the termination of 20 staffers, in a bid to rapidly reduce operating costs to the bare minimum, just six will remain at the company to assist administrators in their viability assessment.

In an email circulated by the press, Coombes said, "The purpose of the administration is to restructure the Wileyfox Group, reduce its cost base in Europe and to ensure its long-term future across all the markets it operates in.”

Professional services firm Quantuma will now work to restructure the firm, with the corporate recovery business advisory’s Andrew Andronikou and Andrew Hosking being appointed joint administrators. Hosking is also understood to have been made a joint administrator alongside Sean Bucknall, as Quantuma secured a 12-month extension to its term overseeing the administration of King & Wood Mallesons' failed European arm, in January.

Quantuma was also recently at the heart of the turnaround of Bedworth Haulage. A total of 21 jobs were saved at the Warwickshire haulier, after the business was sold out of administration. Now, Quantuma seems to be hitching its plans for WileyFox on similar hopes.

Andrew Andronikou said of the challenge ahead, “We are looking at prospective interested parties to buy the goodwill and IPR associated with the business to take forward the operations in Europe.” Hinting at areas where further savings could be made, he added, "Distribution of the handset hasn't been successful, it hasn't penetrated the market in accordance with the time set out [by management]. They still had to spend a lot on marketing.”

Profile

More news on

×

8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.