Deloitte poised to administrate ailing Poundworld

08 June 2018 Consultancy.uk

Big Four professional services firm Deloitte is understood to be on the verge of an appointment as Poundworld administrator. While BDO is also reportedly in the frame for the role, Deloitte’s pre-existing relationship with the floundering retailer places it as a prime candidate, should rescue talks for the discounter collapse.

According to reports surfacing in the British press, Poundworld is on the brink of announcing its intention to appoint administrators, putting around 5,300 jobs at risk. The discount retailer is low on cash following a sustained period of poor performance, and is filing the notice because it will give the business protection from its creditors for two weeks.

The retailer, not to be confused with Poundland – which hired AlixPartners last year to deal with financial challenges – was hit with a £5.7 million charge for onerous leases, a provision retailers prepare for when the cost of a lease is no longer covered by the income of a store. The news followed a widening of Poundworld's between 2016-17, from £5.4 million to £17.1 million.

Deloitte poised to administrate ailing Poundworld

The private equity firm which owns Poundworld, TPG Capital, already had one Company Voluntary Arrangement (CVA) on its hands this year – as the group also owns restaurant chain Prezzo – and in April 2018 the company was mulling over a second insolvency procedure which would allow it to renegotiate with landlords to slash rents and close as many as 100 of Poundworld’s 355 stores. The plans never came to fruition, however, and now the retailer's adviser of choice, Deloitte, is understood to be waiting in the wings with contingency plans for an administration, should further talks collapse.

If a solvent sale of Poundworld cannot be agreed, the business could be sold through a pre-pack administration or be liquidated outright, underlining the urgency of rescue talks which Deloitte is presently leading. Inside sources at the firm have also alluded to BDO being lined up as a potential administrator, should Deloitte’s pre-existing relationship with the case cause problems in the winding down process.

Poundworld is the latest in a succession of high street presences to face bankruptcy in 2018. At the end of February, Toys R Us and Maplin collapsed within a matter of hours of one another, and were followed by a multitude of other brands either entering CVAs or entering administration. A number of different factors are said to have played into the retail crunch experienced across Britain and the world this year, but the most commonly cited are the rise of ecommerce, and the mismanagement of properties by private equity firms, which often saddle newly purchased brands with large amounts of debt, as was the case with Toys R Us and American teen fashion store Claire’s.

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Consumer goods start-ups grow interest from venture capital

23 April 2019 Consultancy.uk

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.