Mamas & Papas Considerations in Company Voluntary Arrangement

Mamas & Papas in Company Voluntary Arrangement
Mamas & Papas Considertions in Company Voluntary Arrangement

Mamas & Papas, the upscale maternity chain, is considering a radical store closure plan to combat ongoing financial difficulties. The chain has been tackling exponential losses in recent times and as a result, is in talks with the financiers behind London’s renowned Liberty department store. BlueGem, a private equity fund, has proposed a £20m cash injection into the company in return for a majority holding. One of the core terms of the agreement appears to be a commitment to reducing the number of Mamas & Papas’ high street stores, which currently stands at 55.

If given the green light, plans for store closures are likely to be conducted through a Company Voluntary Arrangement (CVA), the benefits of which would be invaluable to the maternity chain. Protecting the company from legal action, the CVA would allow the parties concerned to restructure the entire business whilst adhering to a pre-conceived, responsible budget. Moreover, Mamas & Papas would continue trading as normal which would positively impact on the number of people kept in employment.

A chain favoured by those of a wealthy disposition, Mamas & Papas is one of a number of chains which has seen its profits devastated by ferocious competition in the market. The emergence of online retailers and supermarket’s affordable clothing ranges have left big names in the maternity wear market reeling in profit terms. Internal data suggests that the average price of best-selling products has plummeted by up to 30%; Mamas & Papas, which trades in 59 overseas markets, recorded sales of £108m against paltry profits of £5 last year. This paints a very drab picture with regard to the maternity chain’s longevity.

This profit-related stagnation is mirrored in the case of Mothercare, which recently rejected a takeover bid of £270m from US rival Destination Maternity. Following struggles in recent years, which consist of multiple profit warnings and the departure of its chief executive, the company is determined to not be undercut by an opportunistic, devalued bid.

Last month, spokesmen for Mamas & Papas confirmed that it hoped to secure external investment in order to consolidate the maternity chain’s commitment to accelerating global expansion, new product development and a higher turnover.

60% of the £20m proffered by BlueGem has been allocated for the business alone, with the remainder being used to pay off a shareholder loan to David Scacchetti, who co-founded Mamas & Papas with his wife, Luisa, in 1981.

Talks are in the latter stages, as advertised by the period of exclusivity afforded to BlueGem in order to reach a consensus with the Scacchettis’, who have owned the business since its inception. A key factor in securing the deal, according to informed sources, is BlueGem’s ability to convince Mamas & Papas main creditor, HSBC, to rollover its hefty borrowings and, in doing so, loosen the noose round the maternity chain’s quivering neck.

BlueGem paid £40m in 2010 for the Liberty department store, which is situated behind Oxford St and is 140 years old. The private equity fund, led by Marco Capello, warded off interest from several reputable rivals including the Hong Kong trading house and Li and Fung.

Adding further weight to the viewpoint which identifies high competition levels as the scourge of large maternity firms, Kiddicare, the children’s retailer, is conducting talks with a view to implementing a rescue plan. Recently acquired by Morrisons, the brand name has severely faltered in recent months and as such, the supermarket behemoth is looking to cut ties.

Two ‘rescue team’ investors have been ascertained: Endless, based in Leeds, and Better Capital, the owner of Jaeger. A final decision is expected to be made this week.

Morrisons is set to be hit hard by the financial shortfall of its ill-conceived venture with £170m set to be written off. This loss results from the imprudent decision to open branches of ‘Kiddicare’ in various big stores with impractically expensive, long-term leases.

The supermarket giants’ botched handling of this deal points to the fact that not every Company Voluntary Arrangement guarantees success. It is important to seek external advice before entering into a CVA with any creditors. This counsel will help to ensure that you stick to a solid plan which aptly considers your economic position and ability to make consistent repayments.

Written by: Mike Smith

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