Matalan, a popular retailer, has announced that a group of its senior lenders will be its new owners following a successful recapitalization transaction. This move is aimed at achieving a de-levered and sustainable balance sheet for the company, injecting a significant amount of new capital, and providing a platform for future growth. The lenders outbid other contenders in an auction that took place last autumn.

In addition to the sale of the business, the recapitalization involves a reduction of £257 million in gross debt on the first day, an extension of debt maturities until 2027, and an injection of £100 million in new capital to drive growth. The new owners, who hold the majority of the outstanding amount of First Lien Secured Notes, are a group led by Invesco, Man GLG, Napier Park, and Tresidor. This deal marks the conclusion of a strategic sales process that began in September 2022.

Thanks to the recapitalization, Matalan’s gross debt will decrease from £593 million to £336 million, providing the company with a financing runway for the next four years. However, the founder of Matalan, John Hargreaves, reportedly expressed dissatisfaction with the outcome. He believes that the deal with the First Lien investors does not adequately address the need to reduce the company’s debt and secure a long-term owner for the business.

On the other hand, the new owners, led by Invesco, are optimistic about Matalan’s prospects. They believe that despite challenging market conditions, the company is well-positioned for success and has clear growth opportunities. Stephen Hill, the CFO of Matalan, expressed gratitude for the support of the new owners and acknowledged the contributions of John Hargreaves and the Hargreaves family in building the business.

Matalan has reported year-on-year growth in both its store and online operations. In Q3, it achieved a growth rate of 7.3%, and during the December peak trading period, sales increased by 14.6%. Overall, the company expects a 10.9% revenue growth for the financial year.

However, recent profitability has been impacted by several factors, including market conditions and the company’s buying plan for AW22. Matalan had higher levels of stock going into autumn compared to the previous year, which turned out to be too ambitious. The company faced a slow start to the season due to warm weather and consumer uncertainty caused by the cost-of-living crisis. To manage its inventory, Matalan heavily discounted its products, resulting in higher markdown levels compared to the previous year.

Furthermore, the company faced cost pressures such as energy and labor inflation, supply chain issues, and an unfavorable foreign exchange environment. As a result, Matalan expects its EBITDA for the year to be significantly lower than projected. However, the company has successfully cleared its seasonal stock and adjusted its buying approach for the upcoming season. Recent improvements in inflation rates and foreign exchange pressures, along with cost reductions from a renegotiated freight contract and lower expenses, are expected to support profitability. The launch of a new website and ongoing automation in the supply chain are also anticipated to contribute to future growth.

Looking ahead, Matalan projects earnings of £76 million in FY24, which is set to increase to £114 million by FY26. With the support of its new owners and strategic initiatives in place, the company aims to drive a return to strong and sustained growth.

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2. Matalan official website