Henry Jackson in debut deal

Merchant Equity Partners, a retail-focused private equity firm set up by a former managing director at Deutsche Bank, has made its first deal, investing up to £73 million in the loss-making retail unit of MFI Furniture Group.

Merchant Equity Partners, a London-based private equity firm headed by former Deutsche Bank managing director Henry Jackson, has bought the loss-making retail division of MFI Furniture Group, which will rebrand as Galiform after the sale.
 
MFI’s retail division has been sold to Merchant Equity Partners for a nominal £1 (€1.49), with approximately £50 million to be invested in the company if MFI’s shareholders approve the deal, and a potential further £12 million to be invested in April 2008. Merchant Equity Partners will also arrange bank facilities of at least £40 million by March 2007.
 
The MFI Group, rebranded as Galiform, will pay Merchant Equity Partners £8.7 million upon completion of the deal, and a further amount of up to £65.1 million by April 2008. Galiform will also pay an estimated £51.9 million to cover customer deposits and will retain the division’s pension deficit of approximately £150 million.
 
Under the terms of the deal, Galiform will be entitled to minimum of five percent of any sale proceeds in excess of £300 million if the business is sold within five years of completion. This amount will be reduced in the case of any refinancing of the business, but could increase by up to 25 percent if the gross proceeds of a sale exceed £482 million. In the event of a flotation, Galiform will have the right to subscribe to new equity equivalent to the terms of a sale.
 
A source said that the terms of the deal were a result of the retail division being a loss-making business. The retail division’s sales for 2005 totalled £741.9 million with an operating loss of £49 million and a loss after exceptional items of £132.2 million.
 
The source said that the two groups are co-investing at this stage in order to “keep the business alive” and will focus on growing the business. This includes the appointment of Gary Favell, former head of Wyevale Gardens and kitchen and bathrooms supplier Magnet, as chief executive, and David Hamid, former chief executive of Halfords.
 
The transaction is the first for Merchant Equity Partners, launched by Jackson in February of this year to focus on struggling European retail businesses. The firm, which raised around £700 million from backers Goldman Sachs and hedge fund Cerberus, according to the source, recruited Hamid and ex-Somerfield boss John von Spreckelsen as operating partners in March.