Last call for BC-backed Phones 4u

The UK retailer has filed for administration, a year after BC took out a £200m recap

Buyout firm BC Partners slammed telecoms giants Vodafone and EE today, after its UK-based mobile phone retailer Phones 4u collapsed into administration with the potential loss of more than 5,500 jobs.

In a statement, Phones 4u said it had been forced to appoint administrators from PricewaterhouseCoopers after being informed by mobile network EE, the parent company of Orange and T-Mobile, that it would not be renewing its contract with the retailer, which is due to expire on 30 September 2015.

EE’s decision came just two weeks after Vodafone said it would no longer be extending its agreement with Phones 4u, which runs until February 2015. O2 also cut ties with the retailer in February.

Phones 4u’s 550 stores will be closed pending a decision from the administrators as to whether the business can be reopened for trading, according to the company statement.
BC Partners acquired the business from Providence Equity Partners in 2011 for around £600 million, which included an equity investment of around £190 million from its eighth fund, a source familiar with the deal told Private Equity International.

In September 2013, BC took out £205 million in a dividend recapitalisation to pay back its investors. At the time the company was holding about £350 million in cash, according to the source, following the sale of one of its units, mobile phone insurance provider Lifestyle Services Group, to US insurer Assurant for £107 million.

BC, which declined to comment on the situation, is thought to have made back more than its initial investment in the retailer.

In the statement, Phones 4u said it was a profitable and well-managed business, with a turnover of £1 billion and EBITDA of £105 million in 2013, as well as having “significant cash in the bank”.

However, the business could not survive without the support of the four big mobile operators, Phones 4u chief executive David Kassler said. “If the mobile network operators decline to supply us, we do not have a business … The ultimate result will be less competition, less choice and higher prices for mobile customers in UK.”

In a statement, BC Partners managing partner Stefano Quadrio Curzio laid the blame squarely at Vodafone’s door.

“Vodafone has acted in exactly the opposite way to what they had consistently indicated to the management of Phones 4u over more than six months. Their behaviour appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones 4u no time to develop commercial alternatives.

“EE's decision on Friday is surprising in the context of a contract that has more than a year to run … [It] leaves the Board with no alternative but to seek the Administrator's protection in the interests of all its stakeholders.”

Phones 4u reportedly has about £635 million in total debts, including £430 million in senior secured notes trading on the Irish Stock Exchange which are due for repayment in 2018.

BC’s eighth fund, a 2005 vintage, closed on €5.88 billion. Investments from the fund include London-focused UK estate agent Foxtons, which BC floated on the London Stock Exchange in September 2013; and cleaning product and insect control business Spotless Group, which the firm sold to German corporate Henkel in June for €940 million, netting a 2x return.