Second Oz retailer heads into receivership

Last month, Colorado Group was on the verge of seeing the six-week extension on its banking covenants run out, prompting its owners to make a difficult decision regarding the repayment of its approximately A$405 million in debts. Instead of fronting the capital, Colorado turned itself over to administrator Ferrier Hodgson, the same administrator to take over REDgroup.

According to a Ferrier Hodgson statement, Colorado's position was "largely driven by the poor performance of the Colorado-branded stores. The other brands are performing well given market conditions." The Melbourne-based company owns and operates four popular clothing and footwear brands: Dianna Ferrari, Jag, Mathers and Williams Shoes in 430 stores in Australia and New Zealand. In light of this assessment, experts have suggested these brands may be spun out in order to stay afloat.

Affinity purchased Colorado in 2006 for A$430 million in the "first unsolicited public market takeover offer by a private equity firm in Australia, under which control was successfully acquired," according to the PE firm. Yet, as consumer confidence slipped, so did Colorado's performance. In FY09-10, the company posted an A$62.7 million pre-tax loss.

PEP also saw its otherwise promising, seven-year investment take a turn for the worst. In February, Australasia bookstore chain manager REDgroup Retail was handed to Ferrier Hodgson, a setback coming just months after REDgroup was touted as a strong candidate for a public float, given its leading position in its niche. Pacific Equity Partners and REDgroup reportedly hired Macquarie Capital, UBS and JPMorgan as advisors on a float, slated for 2010, targeting $A500 million. Yet by July, REDgroup uncovered its struggle to repay lenders under the weight of A$175 million in debt, and was expected to breach two out of three of its banking covenants.

These outcomes fly in the face of the buoyancy relayed by industry insiders in recent weeks. At the recently concluded AVCJ Forum in Sydney, Australia's economy in the aftermath of the GFC has been touted by industry practicioners as "remarkably robust," and AVCJ data notes that, from FY09-10, funds raised for Australia rocketed 260%, to nearly $2 billion.

The problems with these two deals are reminders that, as the Australian economy recovers, targets must still be approached with caution. Another telltale of this: distressed assets look to be on the rise, with more than A$13 billion of senior and subordinated debt slated to mature from the fourth quarter of 2012 through full year 2013, as noted at the AVCJ Australia conference.

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• Topics
• Australasia
• Consumer
• Affinity Equity Partners
• Pacific Equity Partners