Wholesalers Bestway, Kitwave and Bidfood have been tipped as the most likely trade buyers of specialist booze wholesaler and retailer Conviviality after the firm confirmed this morning plans to bring in administrators within the next 10 days.
Bestway is understood to have been tracking the situation for some time and looks the most likely trade buyer given the timing and its ability to swallow Conviviality whole.
As well as having strong connections in the trade, and the knowledge to sort the convenience stores out, it would help them diversify – and into a space that is not occupied by arch rival Booker. However it may be put off by the number of corporate-owned stores – thought to exceed 200 – that Conviviality operated.
While the Co-op might be willing to take on that many company-owned stores, the timing is hampered by the CMA’s ongoing investigation into its acquisition of Nisa and the integration of Costcutter into its supply chain. Similarly, Booker might be interested, but it’s focused on integrating with Tesco following a year-long CMA investigation of its own.
As to Kitwave, it has been on a buying spree for several years, consolidating the wholesale market in small chunks, though whether it would be able to bite off a business of the size and complexity of Conviviality remains to be seen.
Accordingly, sources close to the situation expect numerous suitors to express an interest in buying parts of the business, such as Matthew Clark or Bargain Booze - with suppliers and private equity houses also on the lookout for a bargain or to secure their route to market.
All eyes on Matthew Clark
Matthew Clark is the largest, most profitable and therefore most attractive target thanks to its scale and dominion over on-trade distribution, and other players in the drinks trade may also come in, including suppliers Heineken and C&C, which had previously expressed an interest prior to its sale to Conviviality, said a senior drinks industry source.
“It was a profitable business generating higher margins than any other wholesaler of its size,” said the source. “The issues were far more about high central costs and investing in and expanding the low-margin retail business, while at the same time implementing new warehouse and financial systems.”
Another possibility is that ABInBev might feel the need to secure distribution. It would be particularly threatened if Heineken were to enter the frame, the source said. “Their share would be at serious risk, as their distribution [in the on-trade] is so dependent on Matthew Clark. They’re the only major brewer without their own distribution network. I would seriously be thinking of making enquiries if I were them.
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On the off-trade side, too, Bibendum’s profits had risen under Conviviality’s ownership, making it potentially an attractive option in its own right. “It’s in a higher margin section of the market and it hasn’t been too tainted,” the source said. And Bidfood has strong connections with Bibendum, through Vivas, its long-term and increasingly successful joint venture.
Uncoupling Bibendum from Matthew Clark would not be easy following its integration, however.
Symbol operations
Another industry source said there would be enquiries about its symbol operations, which include the off-licence chain Bargain Booze, convenience store franchise Select Convenience and the WS Retail business that had been acquired from the administrators of Palmer & Harvey in December.
The source suggested that even the symbol operation might be split, though, with the possibility that the Bargain Booze operation reverted to its traditional northern heartland. “There is a market for a discount off-licence. That’s not to say you would be able to resurrect it as it was before it floated, but you could make the case it would still generate a high turnover. It’s compact, the depot is nearby in Crewe, and people are looking to add to their portfolio as part of a contracting market.”
Also complicating the situation for potential buyers is the matter of Conviviality’s debt. A City source suggested “trying to carve it up between individual assets” could be virtually impossible for suitors looking to buy it piecemeal rather than buy Conviviality outright.
Read more: Conviviality files notice to appoint administrators
It was crucial, said a senior wholesale source, that the administrators gained a handle on the debt quickly. “If you don’t need to pay for the equity, you’re starting from a lower base, so you could grab yourself a bargain. It’s a fundamentally profitable business. But the onus is on the administrators to do a quick but thorough piece of due diligence. As a buyer you would need to go in knowing exactly what the debt to suppliers is, how much you owe in rebates, as well as bad debt, overdraft facilities and bank debts of course.
“After three weeks you would hope that PwC would be on top of the situation, but these company doctors don’t always know what’s going on. They only know what you tell them. And they may not be getting the intelligence they need.”
Conviviality announced last night it had failed to secure the necessary £125m cash injection that had been deemed necessary to save it, after a month of hell saw more than £350m wiped from its value after a string of profit warnings and PwC was drafted in to help.
‘Lacklustre’ presentations
An investor who was privy to the sale process said Conviviality’s presentations had been lacklustre and “focused on shifting blame away from management, rather than reasons to believe”.
Although administrators have not yet been called in, it is understood PwC are being lined up for appointment within the next 10 days, having already been drafted in for emergency aid since the turmoil came to a head earlier this month.
Conviviality said it would continue to trade until further notice as it “continues to work alongside advisers in order to preserve as much value as possible for all stakeholders” as it explored sale options.
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The wholesaler source expressed concern that neither Conviviality’s management, nor the administrators, understood the urgency of the situation, however.
“My worry is, if you don’t understand wholesale, you don’t understand how quickly a wholesale business can unravel. It’s saying it will appoint an administrator within 10 days. Quite frankly they should have been trying to find suitors in tandem with the investment process. And they should not have gone round doing an investor roadshow without a credible retailer or wholesale manager on the team.
“The value of it is unwinding. Most potential buyers are saying ‘I don’t like this and I don’t want that’. The administrator is going to look for the highest value and that would come from selling it quickly, and selling it in one piece.
“If the administrators can’t sell this one, which generates £55m of ebitda, what is the point?”
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