OpCapita, a UK buyout firm formerly known as Merchant Equity Partners which focuses on the retail and consumer sectors, has acquired struggling UK electrical chain Comet for £2.
The vendor, French retail group Kesa Electricals, will retain liability for Comet’s substantial pensions liabilities as part of the deal, and will also invest £50 million into OpCapita’s holding vehicle. That investment will allow Kesa to share in any future proceeds arising from OpCapita’s eventual sale of the business, but only if those proceeds exceed £70 million, the firms said in a statement.
There's a chronic oversupply of electrical goods stores in the UK
A UK retail analyst
David Newlands, chairman of Kesa Electricals, set out the group’s reasoning behind the disposal in a statement: “Having concluded a [strategic] review [launched in June], the board believes a disposal delivers a more certain outcome than continuing with the turnaround plan. Whilst good progress has been made, the board took into account: the ongoing negative impact of Comet on the financial position of the group; the significant challenge involved in achieving an acceptable level of profitability at Comet over the long term given the specific competitive nature of the UK market; and the substantial costs involved if the turnaround plan proved to be unsuccessful”.
A retail analyst told Private Equity International there was a “chronic oversupply of electrical goods stores in the UK”, which had led companies like Best Buy and now Kesa – which owns the Darty chain in France – to abandon the British market.
Despite the acquisition by OpCapita, Comet’s future looks far from certain however.
Kesa and OpCapita said in their statement that the proposed capital of the holding vehicle, with £30 million in equity from OpCapita’s investors supplemented by a £40 million asset-backed loan facility and £50 million from Kesa, should allow Comet to continue operating in the current trading environment. “[OpCapita] has confirmed their intention to conduct the business of Comet as a going concern for at least 18 months from completion [of the deal],” it said.
OpCapita has no current plans to reduce Comet's retail footprint by closing stores, nor reduce the number of employees, according to a source close to the firm. The firm itself issued a statement saying: “Although electrical retailers face challenges, Comet's current management has made good progress on the strategic objectives of its turnaround plan and OpCapita will be working closely with the top team to further develop and enhance this strategy. We believe Comet is very much a viable business.”
OpCapita already owns French furniture and electrical goods company BUT, and previously turned around UK chain MFI before selling the business for “a small profit” in 2008 according to its website.