Furniture and appliance retailer MFI is once again in the headlines this weekend, this time with reports that the group, owned by Merchant Equity Partners (MEP), is understood to face four main options that are being weighed up. A management buyout, further cash from existing investors, a sale to another private equity firm or administration. The company has 185 stores and experts believe it could fold next week.
These reports are coming from numerous sources, with many highly reputable ones among them and also seem to be carrying more and more detail of just how much financial trouble MFI seems to be in currently.
MEP has lined up Kroll to act as administrator if a buyer cannot be found early this week.
One option under consideration is to arrange a “pre-pack” administration, under which a buyer, potentially including MFI’s management team, would buy certain assets of the company immediately after Kroll is formally appointed.
A source close to MEP claimed last night that a management buyout was the likeliest option to resolve the future of MFI and claimed the recruitment of Kroll was part of conventional preparations ahead of a possible decision to call in administrators. In addition to the management buyout talks, a number of other parties have also been considering offers for MFI.
Gary Favell, MFI’s chief executive, is in talks with a number of possible financiers of a takeover bid, although Goldman Sachs, which is an investor in MEP, is not among them. UK Whitegoods members were informed on Friday that there were no problems with MFI as a business and that money could be found from Goldman’s. It seems however that this may not be the case as reports over the weekend seem to indicate that money will not be coming from Goldman’s.
Potential investors named that may pump money into MFI include Hilco, an existing investor in the chain, which has two seats on MFI’s board, and Sun Capital Partners, whose backers include the insurance and leisure tycoon Hugh Osmond. The private equity group, Rutland, has also been named.
It is also thought to include Brian Kennedy, the entrepreneur behind the Everest double-glazing firm.
In recent months, MFI’s search for fresh investment has become increasingly desperate. MEP has held talks about merging the chain with Homeform, which owns Moben Kitchens, or Nobia, which owns Magnet Kitchens. So far, however, these discussions have been unsuccessful. MFI, which employs about 3,000 people, was bought by MEP for £1 after its separation from the Howden Joinery trade business, which has since been renamed Galiform.
It has also been reported and, that MFI faces a quarterly rent bill on Monday and has allegedly written two letters to its landlords – one asking for a rent-free period and another saying it wants to continue trading despite going into administration.
This has been reported by multiple sources over the weekend leading to further speculation over MFI’s immediate future given last weekend’s reports of financial instability.
The Times reports today that MFI will fall into administration tomorrow unless talks to secure financial backing for a management buyout are successful.
Chief executive Gary Favell was understood to be in “advanced discussions” this weekend about securing funds for a buyout, but Kroll, the firm of restructuring experts, is on standby if the deal falters.
A resolution must be found before tomorrow morning when the kitchen and home-furnishing chain’s quarterly rent is due. This weekend observers believed the management would agree a buyout deal. A person close to the meeting said that the talks were very “fluid and fast-moving”.
For repairers carrying out work on behalf of MFI this could mean potentially large financial losses if the company does slip into administration. It also means that customers with warranties issued by MFI may find themselves unable to have any appliances requiring repaired attended to as, if MFI does fail, repairers will halt all work until guarantees of payment are reached with the new owners, if one is found.
Update 29/09/08
According to the BBC from last night, MFI will continue to trade after a management buy-out saved the firm from further troubles.
Chief executive Gary Favell said on Sunday that a deal to save the company would be completed within 24 hours. It comes after several days of talks between management and MFI’s owner Merchant Equity Partners.
MFI said the deal would protect its employees’ jobs and customer orders.
In a statement MFI said the buy-out will be funded through “a substantial cash dowry payment from MEP which will secure deposits paid by customers.”
But added that MEP would not remain a shareholder following the transaction.
Mr Favell said: “I am delighted that we have secured the future of the MFI business through this management buy-out and have the capital to provide continuity and security for our customers, who continue to support MFI as the largest fitted furniture business in the UK.”
He said there had been “large amounts of capital injected over the last two years” and added that the business had some of the “strongest brands in the UK furniture market”. “Fundamentally, it is business as usual for MFI, its employees and customers. In fact, sales in recent weeks have been ahead of plan,” Mr Favell said.