S&W completes Chelmsley Wood Shopping Centre sale

29 January 2016 Consultancy.uk

Fordgate Midlands Properties went into administration when it could not pay the developer and project manager of the Chelmsley Wood Shopping Centre expansion. The asset’s secured creditor, the Bank of Ireland, hired Smith & Williamson to manage the administration of the centre. Management involved maximising the yield of the asset through occupancy. In 2015 the centre was sold on behalf of the bank for £30 million. Smith & Williamson collected £274,000 in fees for their administration of the asset and its sale.

Fordgate Midlands Properties, founded in 1988, is a property investment company with ownership of Chelmsley Wood Shopping Centre in the West Midlands, a shopping centre located in Chelmsley Wood. The original shopping centre was 341,034 sq. ft., with the addition of two extensions adding a further 82,286 sq. ft. in 2009. The development of the mall was partly funded by a loan from the Bank of Ireland with a value of £43 million. In 2010, following substantial sums not being paid to the developer and project manager, the bank sought advice surrounding recovery of debt due from the company. A number of strategies were devised by the company regarding ways forward which were rejected by the bank, with no further monies made available to pay the debt.

Chelmsley Wood Shopping Centre

In 2011 the company, to protect itself from unsecured creditors seeking legal action, went into administration. Smith & Williamson were called in to lead the administration of the company on behalf of the Bank of Ireland. The secured creditor’s (the bank) long term strategy for the mall was to hold onto the asset and allow it to be further developed, until the market recovered. As part of the administrative duties, Smith & Williamson were tasked with overseeing the negotiations with the mall’s tenants regarding their occupancy with the aim of maximising tenancy levels and income generated. They were tasked with bringing occupancy to the newly developed parts of the mall complex; and seeing to the general management of the asset.

It was recently announced that Chelmsley Wood Shopping Centre in the West Midlands has been sold by the administrators on behalf of the bank, in a transaction reported to be worth £30 million. Smith & Williamson were paid fees totalling £274,000 for their work administrating and sale of the asset for the Bank of Ireland. Travers Smith and Jones Lang LaSalle acted as lawyers and real estate agents respectively for the administrators.

Henry Shinners, Head of Restructuring and Recovery Services at the London office of Smith & Williamson says: “We’re delighted that this sale has completed. It has involved a lot of hard work and demonstrates the strength, as well as the breadth, of experience our team has nationwide.”

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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.