European buyout firm Duke Street Capital [DSC] has responded to the disappearance of the IPO market with a recapitalisation of UK DIY retailer Focus Wickes that will enable DSC to return over £300m to investors.
Apax Partners is paying £340m for a 28.9 per cent stake in the firm, valuing the entire business at just over £1.175bn, as Duke Street realises part of its investment in the DIY retailer in which it originally invested 15 years ago.
Duke Street Capital, Bill Archer, the chairman and chief executive of Focus Wickes, other existing institutional shareholders, senior management and other Focus Wickes employees will hold the remaining shares.
Duke Street Capital CEO Edmund Truell said the transaction enabled the firm “to realise substantial proceeds of over £340m for our investors while maintaining a significant stake in the future development of the company.”
Focus WIckes’ bankers ING Bank and Goldman Sachs, which co-ordinated the aborted £1.2bn public offering in July, as well as Bank of Scotland have been appointed to arrange E1.05bn of new debt facilities for the business. As part of the transaction, Focus Wickes will repay its £125m 11 per cent senior notes due 2010, together with its £45m 13 per cent redeemable senior notes due 2010, via a cash tender offer and solicitation of consents.
Duke Street Capital made its original investment in Focus Group in 1987. In August 1998 Duke Street provided financial backing to acquire the loss making Do It All chain from The Boots Company for £68m, trebling the size of the business to 210 stores. In December 2000 Focus successfully acquired the Great Mills DIY retail chain from RMC for £285m to become the second largest DIY retailer in the UK.
Focus Wickes now operates 289 Focus stores and 138 Wickes stores across the UK and had sales of £1.46bn for 2001. Last year the business reported operating profits of £106m, a more than threefold increase to 2000.
The DIY retail sector has been a lucrative area for UK private equity firms, which have benefited from a boom in the level of consumer interest in home improvements. The £12bn DIY market has grown by eight per cent per annum over the last five years, while the £20bn home furnishings market has grown by seven per cent annually. Both have grown faster than total retail spending and this is expected to continue.
The deal also follows hot on the heels of Permira’s exit from its DIY investment, Homebase, which it sold to Great Universal Stores last week for £900m, achieving a five-fold return on its original investment in the business it acquired from J Sainsbury in 2001.