Gresham Considine

Situation

Largest sofa manufacturer in the UK by turnover supplying products to all market segments both own brand and branded. The group had been owned by a PE house that undertook a recapitalisation which introduced debt of £160 million.

The market in the UK was undergoing substantial structural change as low cost imports gained penetration and major volume retailers increasingly sourced direct from overseas manufacturers.

The Group’s sales and EBITDA declined rapidly from sales of £418 million and EBITDA of £32million to sales of £300 million and EBITDA of £16.8 million two years later. Cash generation of £8 million reversing to consumption of £17 million over the two year period

An initial financial restructuring and turnaround plan was introduced. This reduced the debt to £130 million by way of a debt equity conversion resulting in the banking syndicate controlling the equity.

Intervention

Joe Considine joined the Group’s board to review progress against the original turnaround plan.

The structural trends impacting the Group’s performance continued which caused a strategic review to be undertaken. The focus of the review was on creating and realising value for the main the economic stakeholders. The essence of which was to divide the Group’s subsidiaries into those where value could be created (NEWCO) and those which given the need for additional funds to restructure the business were or would destroy value (OLDCO).

NEWCO was focused on consumer and retail brands sold in the mid and upper market price segments where there was an opportunity to grow the business and exit by way of an IPO. EBITDA amounted to approximately 10% of sales. OLDCO mainly comprised of lower and mid-market own label businesses where sales of £120 million were only delivering break even EBITDA. The prospects for these businesses were viewed as weak .Both sales and order intake had suffered considerable erosion in the prior 12 months. In addition OLDCO was to also contain redundant leasehold properties the exit cost of which was estimated at £17million.

NEWCO required £2 million additional cash to fund its development plans whereas OLDCO required £ 13 million to restructure its production capabilities plus £17 million to exit redundant properties.

Outcome

The banking syndicate declined to provide the funds required to restructure OLDCO leaving the Board with no option but to place OLDCO into an insolvency process. Not providing the funds to restructure OLDCO meant the owners of the business the banking syndicate improved their value position by approximately £30 million.

Nature of Support

Board Mentoring

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Stakeholder Management

Case Details: £300 million turnover UK Sofa Manufacturer

Case History