Deloitte to oversee Office Outlet administration

25 March 2019

Over 1,000 jobs have been jeopardised by the news that UK stationary store Office Outlet has been placed in administration. Big Four firm Deloitte has been appointed to oversee the company’s insolvency, with the company’s 90 stores continuing to trade while a buyer is sought.

Attempts to avoid yet another British high street collapse seem to have failed, with Office Outlet appointing administrators in March 2019. The chain had previously launched a Company Voluntary Arrangement (CVA) just six months ago, but while the controversial insolvency measure allowed it to restructure debts and strike a three-year rent-free deal for 20 of its 90 shops, the firm has still collapsed.

In the latest sign of industry stress on Britain's high streets, the retailer yesterday drafted in administrators from accountancy firm Deloitte. The news sees some 1,200 jobs put at risk, along with throwing the future of 90 stores into doubt.

Office Outlet is the latest in a small but growing cadre of failed private equity-backed retail firms led most notably by Toys R Us, which liquidated its iconic stores in 2018. Similarly, teen fashion retailer Claire’s fell into administration not long after it had been acquired by private equity owners – loading the firm with debt which it could not support.

Deloitte to oversee Office Outlet administration

Formerly known as Staples, Office Outlet was rebranded following its purchase by Hilco Capital in late 2016. Hilco now controls a minority holding, with a management buyout conducted in September last year that was led by chief executive Chris Yates. Now, Office Outlet looks set to close a swathe of stores, following the launch of huge sales and announcing its administration on its website.

According to Deloitte, the firm succumbed to continued turbulence in the broader UK retail sector, which has seen declining demand thanks to stagnating wages, while being hit by increased import fees due to the poor health of the pound. Office Outlet is now being marketed for sale, though its stores will keep trading whilst a buyer is sought.

Richard Hawes, joint administrator, commented, "In addition to a general downturn in trading as a result of the on-going decline in the stationery market and UK retail in general, the company has recently experienced a reduction in credit from key suppliers, given the economic outlook which has severely impacted the financial position of the company...We are hopeful a buyer can still be found for the business in the coming weeks and we will continue to trade the business with that aim in mind."

Office Outlet Chief Executive Chris Yates said, "Over the last two years the business has been transformed from the heavily loss-making old Staples business to a near breakeven modern multichannel retailer. However, additional growth capital was required to continue delivery of the next stage of the management buyout business plan. Despite being highly impressed by the Office Outlet story potential investors have held back due to retail sector sentiment and the general level of uncertainty."


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8 tips for successfully buying or selling a distressed business

18 April 2019

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.