Restructuring in full swing

Mercer & Hole have recently completed the pre-pack sale of an online golf retailer, securing jobs and generating a return for creditors.

The business was acquired by a European group in the immediate aftermath of the pandemic. As one of the first outdoor activities to re-open following lockdown, golf clubs and suppliers to the golf industry initially enjoyed a boom time, but two years on revenues proved to be unsustainable and the business found itself with less demand and stock levels that were too high . Golf had benefitted from giving people an outdoor activity at a time when options were limited, working from home was in full swing, and disposal cash was available due to a lack of commuting and ongoing government support. As a result sales of golf equipment peaked after the pandemic, with both regular golfers able to self-justify upgrades to their kit, and new enthusiasts gearing up for a future on the links!

Fast forward two years, a return to the office, inflation and a cost of living crisis, the disposable time and cash have to a large part disappeared. The case for a new set of clubs is harder to justify for the enthusiast (including the author!) and many of those who were new to the sport have seen spare time evaporate, will have come to the terms with the fact that golf is hard and inevitably drifted away.

Suppliers, manufacturers and retailers are left with surplus stock and a smaller pool of potential customers but golf is by no means alone with other hobby’s seeing a similar financial cycle.

In this instance Mercer & Hole were approached to review the company’s solvency, discuss the directors duties, and assist the board in assessing the options available to the company.

The business was insolvent, the parent company had been supporting it for a number of months but had recently made the difficult decision that it could no long continue to support ongoing trading. As well as the economic trends brought on by the pandemic, Brexit had made the export business more complicated and expensive, eroding margins at exactly the wrong time. There were concerns about immediate payments such as rent and wages, and mounting trade creditor pressure.

The Company had tried to take the business to market earlier in the year but had been unable to secure a buyer, which had left management sceptical that a sale could be achieved. However, an immediate cessation of trade and commencement of liquidation would have decimated asset and business value, leaving employees out of work and vacant premises. Outcome models indicated that there would be a significant shortfall to HM Revenue & Customs as a preferential creditor, and no prospect of a return to ordinary unsecured creditors from an insolvent liquidation.

A strategy was therefore devised to run an Accelerate M&A process to maximise the value of the business as a trading entity. After a competitive sales process, the result was the disposal of the business and assets via a pre-pack transaction, to an unconnected third party, including the transfer of staff.  The value generated from the sale will allow for preferential and secondary preferential (HM Revenue & Customs) creditors to be paid in full, along with a material distribution to unsecured creditors.

Working with the directors to generate a short period of trading during which the business and assets could be marketed for sale, allowed for a result which has substantially benefited the creditors as a whole. It was a pleasure to work with the board and their advisers to make the transaction a success.