Adopted Business 2004: Americana

2003 was a chaotic year for Alan Horridge and Americana. As well as day to day business he swapped his role of finance director for managing director. Here he tells the inside story of his MBO


Issue 26, February 2004
You sense Alan Horridge has been let off the leash somewhat. The former finance director of Manchester-based fashion wholesaler Americana led the £20m management buy-out of the company, backed by Isis Equity Partners, and finally took over as managing director in August last year.

As Horridge found, complex transactions like these are a long time in the making, even when all parties come to the table amicably. Initiated in January, founders Nayef Marer and Barrie Suddons were looking to exit and Horridge was keen to add equity to the role he had played for the previous couple of years.

On a day to day basis he was already responsible for the running of the business, but in terms of ownership he had none, and when it came to the company’s expansion strategy his colleagues had ultimate power of veto – something they’d exercised on a few occasions already.

By the time we catch up in the midst of Winter, Horridge has lined up a distribution deal to give Americana’s Hooch and Bench street fashion brands a wider reach. It’s a move the founders would have been decidedly sensitive about. It has often been stated that a key factor in the success of the labels is the fact that they are not mass market and are thus not over-exposed and ‘uncool’.

Horridge is adamant this remains the case with his plans and says the “philosophy will be the same”, although it’s clear he feels there is more scope within that remit than was previously recognised. “It was always a bit more difficult pre-MBO. We had been in a bit of a vacuum,” he admits, despite growth figures most companies would die for.

The company’s chain of Westworld outlets finally looks set to open in London’s prominent Covent Garden and the company’s German agent is actively working with the company to design clothing ranges that suit the German market more.

The MBO itself came about when the triumvirate in control – Marer, Suddons and Horridge – looked to see if they could reduce some of the equity for the two founders at the back end of 2002. Fast forward eight months and on August 7 at 11pm control passed to Horridge’s team and his backers.

Agreeable

Main among aims of any deal was that all would stand down from the negotiating table and shake hands. And illustrative of the agreeable nature of the final deal, Marer remains part of the set up, now working out in China with the company’s production office in Shanghai, which manufactures around 90% of all items and Suddons has moved to France but has been in phone contact. As you might expect though, Horridge did note a change in Suddons as the deal got close. “It clearly dawned on Barrie that he was about to lose the business he’d been in for 15 years.” Fortunately for Horridge, it neither damaged relations nor the deal.

There were other stresses too. “It drives you bananas, with the amount of information and people involved,” says Horridge. “There was a constant stream of solicitors and financial advisors who all wanted information in a different way and each of them had an opinion, yet these are people that have never run a business in their lives.”

Particularly frustrating was the assessment of the company’s debt collection. Horridge says no allowance was given for his knowledge of the Americana’s debtors and his view that there would be no problem. “We had £50m invoiced out and only £4,000 of bad debt,” he says. “Right at the death of the deal the bank got cold feet where the debtors balance was quite high and forced me to take out credit insurance against two debtors for £37,500. Yet within 30 days of the MBO the debtors had paid as we had expected.”

While initially, Horridge’s team had hoped to fund the deal with bank debt alone it became clear he would have to bring in a venture capitalist. Ultimately the £20m deal was made up of £7.5m senior debt from Nat West (Royal Bank of Scotland), with a revolving credit line of £6m, £300,000 from the management team of eight for 64% equity, a loan of £6.5m from Isis Equity Partners, which also bought shares to take a 36% stake.

It’s reassuring that Horridge was not short of offers from venture capitalists, proof that the green shoots of recovery in the mid-size market is not all talk. The choice was eventually whittled down by the keenness of the investor, he says. 3i was rejected because it told Horridge it would be bringing to Americana’s presentation the person it was going to put in as chairman. “I said no you won’t – don’t even bother coming.”

And Lloyds Development Capital couldn’t match ISIS’s approach. ISIS was new to Manchester and eager to bank its first deal in the region. It also had the advantage of retail experience.

However, it appears dealing with your investor is rarely simple early on, irrespective of expectations. Post deal, the first board meeting did not go to plan. “We had lots of discussions to bring the meetings back into line. I guess we didn’t understand Isis, and they didn’t understand us. Fortunately, the discussions cleared the air and we’ve had good meetings since.”

He advises that any business embarking on a similar deal should talk to investors frankly before the first formal board meeting and understand their perspective. “They’re worried about governance and, like bankers, view cash and debtor days as the most important thing in the company. We only looked at cash to see what we could use as a deposit or to repay debt. Most people here are driven by the top line sales numbers and only our FD and a few others keep an eye on the bottom line. This works for our business, and we didn’t want to change that way of doing things.” To keep all parties happy the 30 page monthly board package now covers all bases.

Passion

And how is the company at ground level since the shake-up? Horridge recognises that a little bit of the founders’ passion has been lost, but there have been gains elsewhere. One of the most attractive aspects of the deal for Horridge, was that every member of the full time workforce got a share option, and those who have been with the company four or five years will, he hopes, walk away with about three times their salary in profit. “Now that everyone’s a shareholder the chemistry is definitely different and some of the things the founders didn’t want to do before we can do,” he says. “Once a business reaches a certain level it’s easy to become uncomfortable about making strategic decisions.”

As well as the aforementioned London outlet there are plans for seven more stores in the next 18 months and a new brand is set to be added to the mix. “It’s been around in the UK and Europe for around 15 years,” entices Horridge, “and will fit the portfolio well.” A taster of the kid’s clothes range was well received earlier in the year, so is to go into full production. And also in the offing are plans for shoes and licensing deals on sunglasses, among other items. “We re-looked at the brands. There’s nothing we’re doing that is incredibly new as Diesel has a kids range for example, and we’re taking the best ideas from everyone else.”

Horridge hopes the moves will increase turnover from £36m in 2003 to between £40m and £45m this year and while it’s perhaps too early to be firming up exit plans, he’s got the interests of investors at the back of his mind. He expects the business to double their money in three years and the pros and cons of flotations, trade sales, secondary MBOs or a buy-out by ISIS are already being weighed up. For the time being though, there’s plenty to keep him busy.

Most people here are driven by the top line sales numbers and only our FD and a few others keep an eye on the bottom line. This works for our business, and we didn’t want to change that way of doing things

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