Private equity defends pre-packs

Pre-packs had come under scrutiny for leaving creditors out of pocket and being abused by company bosses to cut off liabilities.  

Speaking at our sister title Real Deals‘ recent UK Mid-Market conference, Iain Purves, head of business support at Lloyds, said: “I’ve never been involved in any that have been used to cut off suppliers or creditors. I know it has happened because I’ve read about it in the press but I’ve never seen it in any mainstream restructure.”

Bonmarche and La Senza both recently traded in pre-pack deals, the former going to Sun European Partners while Lion Capital wrote the latter off and Middle Eastern investor Alshaya moved in. 

“There are absolutely harmless and unarguably good pre-packs,” said Jon Moulton, founder of Better Capital. “If Lloyds are owed money, they can bid for a company in a pre-pack and there’s no victim anywhere. You’re just using it as a restructuring tool.”

Moulton added that he has seen abuse but that it is small and insignificant compared to other market manipulation he has seen. 

But “phoenix” pre-packs, where bosses press the reset button on companies by entering premeditated administration and then buying back their own companies, still face heavy criticism, despite the government’s recent u-turn. 

“Having new money and new investors coming in isn’t a problem,” said Charles Bodie of turnaround private equity house Kelso Place Asset Management. “Although the abuse is small, the problem is when existing management teams are pre-packing deals to themselves. I don’t see too many private equity firms pre-packing to themselves.”

Primary Capital last week closed its latest deal, backing the management buyout of retailer Hawkin’s Bazaar after appointing Zolfo Cooper to place the company into administration in December. The company was bought out of administration, although not via a pre-pack process. 

Read more from Real Deals.

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