According to the Financial Times, the firm is among a list of potential buyers in early-stage talks to buy the lossmaking company, a move reflecting the increasing attraction by private equity firms to the struggling retail sector given the discounted valuations and a lack of deals elsewhere.
A decline in consumer spending, competition from supermarkets and online retailers and increasing costs have caused Mothercare’s share price to fall by 75 per cent to 161p per share in the past year, including a 42 per cent drop in one day in October, prompting chief executive Ben Gordon’s resignation a week later.
The company’s overseas operations posted healthy profits of £18.4m in its half year results in November, but the figure was offset by £18.5m losses for the same period in the UK. The company intends to close 110 of its 373 Mothercare and Early Learning Centre stores in the UK by 2013, the report said.
With the current difficulties facing the sector, the successful bidder could struggle to negotiate debt financing for the deal. If successful, Cinven will add the listed retailer to a handful of UK retail investments it has made in the past, including Hamleys, Peacocks and Allied Carpets.
Cinven is reportedly nearing the first close for its latest fund, which is likely to take the firm halfway to hitting its €5bn target. Limited partners in the firm’s fifth fund include existing investors New York State Teachers’ Retirement System and Pennsylvania Public School Employees’ Retirement System, which invested €100m and €30m respectively.
The firm is the latest to offer a number of concessions to draw in investors, including an ‘early bird’ discount of five per cent off management fees for allocations made during the first round of funding. The firm is said to be on target to meet its €5bn target next year, and has no hard cap for the vehicle.
Copyright © 2011 AltAssets