Get a Wiggle on to plan next debt funding move

October 24, 2023

Sporty readers of a certain age will be familiar with a social stereotype of recent decades: the MAMIL – Middle Aged Man in Lycra. Often heading a queue of overtaking traffic at weekends, these cyclists clad in spray-on ‘technical’ apparel breathed new life into 21st century bike retailing, sometimes paying the price of a perfectly good car for two wheels on a carbon frame.

While the retail sector’s problems are so often rent-related in a tough economy, the top-end cycling industry in the UK seems dominated by online sales. E-tailer Wiggle is a major player in the space but is reported to be facing insolvency after its parent company – which is ultimately US listed company-owned  – said that its unconditional funding of €150 million by by way of an “Equity Commitment Letter”, which made money available from June 2023, was being terminated. Parent Signa Holding is said to be preparing insolvency filings for subsidiaries.

Wiggle, whose previous owners include two UK mid-market private equity firms,  saw sales fall by 30% last year and made a loss of more than £100m. The business had survived the lockdowns of 2020 and 2021 but failed to maintain momentum in the post-pandemic period.

As Hemingway famously said, bankruptcy (or at least insolvency) happens gradually, then suddenly. Wiggle’s £300m+ of debts had been settled by Signa on acquisition in December 2021; the parent, however, recently announced its intention to restructure and delist from the New York Stock Exchange, amid “severe profitability and liquidity challenges”.

The speed of decline and the upstream distance of a funding chain often make it difficult for management teams to plan a ‘safety lane’ for their businesses in the event of an unforeseen swerve off the road. In the retail sector in particular, turnaround funds, sometimes through rapid pre-pack administrations, are adept at alighting on companies with strong brands and good market positions. They might hope to turn a profit on their investment by refinancing, renegotiating debt and applying operational know-how, possibly installing a CEO they know well.

Nonetheless, subsidiary management teams often form the core of an eventually successfully buyout, with or without a turnaround fund.  Those with sufficient visibility over the debt position and structure affecting their immediate business should consider, at least at an exploratory stage, long term scenario planning with their own independent restructuring advisers.

It’s never too early for managers to scope the potential for an alternative deal in the event of a parent company cutting off life support. 

Written by Runita Kholia, Senior Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.

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