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Focus DIY calls in bankers for possible sale

The owner of the nationwide DIY chain Focus has called in investment bankers to look for radical ways to revive the fortunes of the heavily indebted business – a move that could lead to a sale. US private equity firm Cerberus is understood to be taking advice from Lazard on the future of Focus, which struggled through the recession. The UK's fourth largest DIY chain last changed hands, for £1, 3 years ago. A likely buyer could be HRG, which controls the Homebase home improvement business and the Argos chain, and has a £300m cash pile. However, Argos is struggling and it is unlikely that shareholders would approve such a distracting acquisition. Another rival, Kingfisher, which owns market leader B&Q, would probably be blocked from any acquisition on competition grounds. According to analysts Verdict, B&Q has a market share of 27%, while Focus has just 3.5%. Focus, which has 180 UK stores made a loss of £21m on sales of nearly £490m in the year to 21/02, according to accounts filed at Companies House in August. In its directors' report, the company says the trading environment was "extremely competitive" during the period but it was in "significantly better" shape at the financial year's end than at the start. Last year it negotiated a company voluntary arrangement that enabled it to cut leases on a number of empty stores that were draining its cash reserves, and also secured a two-year extension on its £50m overdraft. That arrangement expires in December 2011 but Focus is in talks with its banks about refinancing. According to the accounts, Focus has bank loans and overdrafts amounting to some £230m. One finance agreement, relating to a £60m loan, carries an onerous interest rate at 7% over Libor – the rate at which banks lend to each other. At the end of January some £19m interest had accrued on top of that £60m debt. On a second loan agreement, relating to £100m, the interest is being rolled up until March 2011. Focus's £50m overdraft costs it 4.75% over Libor. The company also has a pension deficit of £25m at the last valuation, for 21 February 2010. Some £190m of the total debt is with parent company Cerberus, with the balance owned to GMAC and Lloyds Banking Group. DIY was once the boom sector in retail as TV programmes such as Changing Rooms turned home improvement into a leisure activity. But the industry's fortunes have dwindled in recent years and, according to Verdict, DIY sales are expected to be down another 2% this year. At Focus, however, trials of a new format in 11 stores, with additional cut-price items under the revived Payless brand, are beginning to deliver improved trading. Focus traces its origins back to 1987 when its founder, Bill Archer, quit Crown Paints to set up a DIY business with £300,000 from remortgaging his house. Four venture-capital firms subsequently backed him in a £4.5m buyout of the Focus DIY chain. It was bought by Cerberus, which took on debts of £180m, for just £1 in 2007. Source : Zoe Wood - The Guardian

31 October 2010
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