The Original Factory Shop (United Kingdom) - Dec 2007

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01 December 2007

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Buyout deal Duke Street Capital (DSC) has acquired The Original Factory Shop from Barclays Private Equity (BPE) as part of a £68.5m secondary management buyout deal. Barclays Leveraged Finance and Kaupthing Singer & Friedlander provided debt facilities to support DSC’s acquisition. DSC was looking for an opportunity in the value retail sector and was aware of The Original Factory Shop when it was brought to market by BPE earlier than expected last year. KPMG ran a limited auction process to facilitate the transaction. DSC was attracted by the resilient nature of value retail businesses and liked the fact that the sector has demonstrated much higher levels of growth than other retail businesses in recent years. The local nature of the business and its defensible market position also appealed to DSC, which intends to open 15-20 new stores per year across the UK and Northern Ireland.

Exit deal The exit from The Original Factory Shop generated returns of 2.4x and an IRR of 35% for BPE. BPE had owned the company since November 2004 when it invested £18.42m as part of a BIMBO deal (10 January 2005, page 21). BPE introduced former CEO of TJ Hughes George Foster as CEO of the business in 2005. This helped the company to grow as well as the development of a broader team, especially in the buying department. Additionally, BPE oversaw the company’s move to a larger warehouse which doubled the capacity of the previous facility.

Company Headquartered in Burnley, Lancashire, The Original Factory Shop has 84 outlets across the UK selling discounted merchandise including ladieswear, menswear, childrenswear, sportswear, footwear, electricals, houseware, toys and gifts and beauty products. Much of what is sold is either branded or was originally made for other high street stores and supermarkets. The Original Factory Shop was established in 1969 as part of Peter Black’s, selling over-makes and seconds produced for Marks & Spencer. Its outlets are predominantly located in small towns. To March 2007, the company generated EBITDA of £7.7m on a turnover of £61m.

People Tim Lebus, Oliver Mayer and Swarupa Pathakji worked on the deal for DSC with Oliver Mayer and Duke Street operating partner, David Williams joining the board. John Walker led the exit deal for BPE. Dave Rimmer and Lisa Ball worked on the financing for Barclays and Andrew Gent for Kaupthing.

Advisers

Debt - Eversheds, Nigel Dale, Paula Robinson (Legal)Equity - McQueen Ltd, Jane Hughes (Corporate Finance)Equity - PricewaterhouseCoopers, Ian Durrans (Financial Due Diligence)Equity - SJ Berwin LLP, Ed Harris, Gillian Smith, Tim Wright (Legal)Vendor - Addleshaw Goddard, Andrew Forsyth, Jim Tully, Paul Medlicott (Legal)Vendor - KPMG Corporate Finance, Andy Scaife, Dave Steens, Jonathan Boyers, Rod Wilkinson (Corporate Finance)Vendor - PricewaterhouseCoopers, Christine Adshead (Financial Due Diligence)