GODFREYS
Loan To Own Done Right
APPROACH:
The key to Godfrey’s was an exceptional cash conversion rate of EBITDA into cash of over 90%. Most retailers are in the 55-70% range.
Job was to buy the debt and restructure the B/S then to turn around the business.
Mr. Riebe utilized Australia’s very process driven bank restructuring system and its limitations to force the original lenders to sell out at a significant discount and then persuade the junior capital & equity to accept a highly unfavourable (to them) consensual deal.
OUTCOME:
Godfrey’s was the lowest cost (for the new owners) consensual deal in Australia in the past 20 years. Led by Mr. Riebe new investors wiped out all equity and the sub debt for only $1 mm of non-cash consideration. A significant saving on insolvency costs in both dollars and time.
Two years later the company listed for almost three times what the new owners paid and in the interim earned high cash on cash returns prior to listing.
SITUATION:
Godfrey’s was Australia’s largest independent vacuum retailer. The business had been around since 1933 with market share in excess of 30%. PE had bought the business in 2006 for 16x EBITDA.
Poor management had caused EBITDA to collapse by 60% caused by a focus on an asset light structure; a low impact sales process; and increased franchising.
Too much debt had made the capital structure unsustainable.
SOLUTION:
Do a Loan-to-Own to de-lever the B/S and allow lenders to own the company to receive the equity upside from the turn around. Issue was how to deal with non-selling bank lenders; a large junior creditor loan; and equity demands.
Stabilize the Business and bring back the old high intensity sales structure.
Make the firm bankable and then sell out.
