LONDON (Reuters) – Struggling British kitchens and bathroom retailer MFI said on Sunday it had agreed a management buyout for the business, saving it from collapse.
Privately run MFI, which is owned by Merchant Equity Partners (MEP), has been hit hard by an economic downturn that has knocked demand for home improvement products particularly hard.
The management team, led by current Chief Executive Gary Favell, will complete the purchase in the next 24 hours, MFI said.
“The MBO (management buyout) will secure the future of the MFI business and safeguard employees within the store network. Importantly, all customer orders will continue to be fulfilled and trading continues as normal,” MFI said in a statement.
Kroll had been lined up to act as administrator for MFI if attempts to find a suitable buyer had proven unsuccessful, according to newspaper reports.
Full details of the sale of the business have yet to be finalised but MEP has agreed to provide an unspecified “cash dowry payment” to secure deposits paid by customers.
However, following the transaction, MEP will no longer be a shareholder of the business.
One person familiar with the situation said the size of the “dowry” was around 25 million pounds ($46 million), which would also allow MFI to pay rent due on Monday and provide it with some working capital.
Favell said that “sales in recent weeks have been ahead of plan,” although the company had been expecting a decline in revenues due to the worsening economic backdrop.
A management buyout emerged as the best option for the group after weekend-long talks to find a buyer or new sources of funding.
The deal is also good news for listed group Galiform (GFRM.L: Quote, Profile, Research, Stock Buzz), from which MFI was spun off two years ago, which faced the possible liability of guaranteed properties where MFI retail leases would revert to Galiform if landlords were not paid.
The collapse of MFI would have been a high-profile failure for Britain’s battered retail sector.
MFI, the largest fitted furniture business in Britain, was founded in 1964 as Mullard Furniture Industries and was an early leader in supplying affordable furniture via mail order and a network of stores.
The company has over 190 stores nationwide, employing approximately 2,500 employees. ($1=0.5440 Pound) (Reporting by Ben Hirschler; editing by Gary Crosse)