Poundworld future in doubt as owner plots discount chain sale

Sky News has learnt that TPG, the American private equity backer of Poundworld, has instructed Deloitte to find a buyer for Poundworld by the end of the month.

Potential buyers were contacted about the process on Friday, according to a possible bidder.

The development comes less than a fortnight after it emerged that Poundworld was preparing to seek creditor approval for a plan to close up to 100 stores, threatening hundreds of jobs.

Poundworld trades from about 355 shops across Britain, employing approximately 5,700 people.

The decision to seek a buyer for the entire business – with a deal being sought by the end of the month – means the fate of that rescue plan, known as a Company Voluntary Arrangement (CVA), is now in doubt.

A failure to strike a solvent deal within weeks could ultimately lead to the loss-making bargains retailer facing administration.

A source close to TPG said it had decided to sell the company after receiving a number of inbound approaches from prospective buyers.

One rival retailer said, though, that it was likely that the US-based private equity firm had decided that it would not fund Poundworld through the CVA process, which it said would have required an estimated £20m of new financing.

TPG has already pumped in a similar sum to prop up the company earlier this year.
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That investment was positioned by sources close to TPG as a necessary step in the transformation of a family-run business into a nationwide retailer with the necessary infrastructure to support future growth.?

However, the renewed doubts about Poundworld’s future may cause it difficulties with suppliers and the trade credit insurers who effectively guarantee payments to them.

Impairments on fixed assets and leases, as well as restructuring costs, saw Poundworld slip to a £17.1m pre-tax loss for the year to 31 March.

Sources said this weekend that Houlihan Lokey, the investment bank, had also been drafted in to advise TPG in recent weeks.

Any new owner would also be likely to pursue a CVA in order to secure rent cuts and the ability to close more than a quarter of Poundworld’s stores.

That would need to happen before the next rent-quarter day at the end of June, underlining the urgency of the sale process, one source said.

Similar moves have been announced by retailers such as New Look, Toys R Us UK, and Carpetright in the last few months, although Toys R Us succumbed to the broader pressures facing it even after it secured approval for the restructuring plan.

House of Fraser has also signalled its intention to launch a CVA, while Mothercare, the struggling mother-and-baby retailer, is likely to unveil proposals for one next week.

Sources said this weekend that likely bidders for Poundworld included turnaround firms such as Alteri Investors and Endless, while other high street players like B&M could also be interested.

Rival Poundland, which has been hit by the accounting scandal at its South African parent, Steinhoff International, is likely to try to buy some stores although the overlap between their locations means a bid for the whole chain is unlikely.
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While Poundland appeared to have enjoyed a robust festive period, with like-for-like sales up 6% in the three weeks to Christmas Day, it too has faced challenges.
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Pepkor Europe, Poundland’s immediate parent company, has turned to the US hedge fund Davidson Kempner for a £180m loan facility to fund its investment plans.

Analysts tipped another Chris Edwards, Poundworld’s former owner, as a possible buyer, having set up the chain in the 1970s.

Mr Edwards recently left a role at Poundstretcher, another of the discount chains which have become ubiquitous on British high streets over the last 15 years.

The enthusiasm of investors for value retailers has grown as pricing competition on the high street has intensified.

In the grocery sector, Aldi and Lidl have accelerated their expansion in the UK to in order to capture a bigger market share as they seek to capitalise on this trend.

The emergency Poundworld auction is nevertheless the latest illustration of the carnage being wrought across the retail industry amid weak sales and rising costs.

Ministers have set up a new industry council, jointly chaired by the former Co-op Group chief executive Richard Pennycook, to devise ways of easing retailers’ pain.

The latest CBI Distributive Trades Survey published last month showed flat sales by volume in the year to April, with the pressure on the sector likely to continue “for the time being”.

A fire-sale of Poundworld will mean it avoids becoming the second company owned by TPG Capital to resort to a CVA process in as many months.

Prezzo, the restaurant chain, recently gained approval from creditors to shut scores of outlets amid similarly tough conditions in the UK casual dining sector.

Sky News revealed this week that both Gaucho and Cote, two other restaurant operators, were also working on plans to shed loss-making sites.

TPG, one of the world’s biggest private equity groups, has backed other consumer-facing UK businesses, including Victoria Plumb, the bathroom retailer, and Prezzo, the restaurant group.

The buyout firm, which is thought to have paid about £150m for Poundworld in 2015, declined to comment this weekend.?

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