High rents didn't help.

Focus DIY collapse - too small or too poor?

Published:  31 May, 2011

CREWE: The collapse of Focus DIY has highlighted the role of private equity firms and their negative effect on companies.

An analysis by the Observer newspaper found that one private equity firm, Duke Street Capital, which made an initial investment of £68m in 1998, took £700m out of Focus after presiding over a series of capital and debt restructurings that turned the small Midlands-based chain into a DIY giant with sales of £1.5bn.

Apax, its investment partner, which put in £120m, pocketed £183m when the Wickes chain was sold in a £950m deal that ultimately left the remnants of the chain struggling.

Ernst & Young could not find a buyer for Focus which had estimated losses of £40m and liquidating the business is not expected to raise enough money to repay secured creditors in full.

The Observer quoted Janet Williamson, senior policy officer at the TUC, who said it was impossible to tell whether Focus could have survived under different financial structures. "It sounds a depressing, familiar scenario, where a company is bought by private equity firms and essentially loaded with debt. What too often follows is year after year of value extraction," she said.

Simon Allport, one of the administrators, said debt was one of "multiple factors", which included an onerous rent bill that contributed to Focus's downfall. "There was some over-leverage there and it was unable to service its debts," he said. "Unfortunately Focus was the fourth-largest chain in a competitive market – and size matters," he said.

 

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