MEP puts together MFI furniture deal

Start-up private equity firm Merchant Equity Parters is in pole position to snap up the loss-making retail division of MFI Furniture Group.

Merchant Equity Partners, a UK investment company set up in February this year to buy struggling European retail companies, is on the verge of nailing its debut deal by buying the MFI furniture chain for a nominal £1 ($2) payment.

Parent company MFI Furniture Group confirmed this morning it is locked in talks with the new group after an article appeared in the Financial Times newspaper.

Although MFI says “significant issues remain outstanding”, it is understood that an announcement confirming the sale could come as early as next week.

Apax Partners and Argyll Partners are waiting in the wings should talks collapse at this late stage.

MEP was set up by Henry Jackson, a former senior Deutsche Bank managing director and retail specialist, who bolstered his team in March by recruiting ex-Somerfield boss John von Spreckelsen, and former Halfords chief executive David Hamid.

NM Rothschild is advising MEP, while Goldman Sachs and hedge fund Cerberus are thought to be backing its approach.

MFI Retail, which operates 200 stores and made a loss of £85.1 million ($161 million) in 2005, was put up for sale in May so that MFI could concentrate on its profitable Howden Joinery division.

Under the terms of the deal, MEP and MFI have agreed to inject £100 million ($189 million) of equity into the struggling business. MFI would delay its payment rather than make it upfront and is also agreeing to supply kitchens to the new ownership vehicle.

Contrary to reports, MFI will continue to meet pension liabilities of around £150 million ($284 million).