Established in 1933, Comet pioneered out of town electricals retailing. By the 1980s the company had emerged as one of the UK’s leading electricals chains. Part of the giant Kingfisher group, in 2003 Comet was demerged from its parent company and became part of Kesa Electricals. Amid growing competition from bricks and mortar rivals and rapid growth in online sales, Kesa moved Comet away from its value heritage and placed a fresh emphasis on after sales service.
The strategy increased costs and coincided with a fall in sales and profits amid a challenging market backdrop.
By 2011 Kesa decided Comet was “non-core” and damaging to the wider profitability of its European business, so it began to explore a sale of the business.
OpCapita submitted a pre-emptive offer for Comet in April 2011.
The offer triggered a formal sale process, run by Bank of America Merrill Lynch.
Despite an extensive auction, OpCapita and a liquidator were the only bidders to come forward.
OpCapita secured the deal with a strategy to recover profitability through a comprehensive operational turnaround.
Before the transaction had even completed, Comet was forced to contend with the withdrawal of credit insurance by three of its primary credit insurers.
The withdrawal increased pressure on Comet’s cash flows and forced the renegotiation of terms of trade with all its major suppliers.
OpCapita focused on driving through an 8 point turnaround programme to deliver operational change, starting with the recruitment of a new senior management team.
John Clare, the former CEO and Chairman of arch rival Dixons was appointed executive Chairman, And a new CFO, Services Director, IT Director and HR Director were appointed shortly afterwards to help drive the turnaround strategy.
The immediate challenge was an oversupply of old stock. The company pursued an aggressive stock clearance programme and introduced much tighter stock controls. Direct sourcing from the Far East was reduced in favour of increased sourcing from local suppliers, enabling Comet to reduce both the minimum order size and the time taken to get products to store.
At the time of the acquisition more than half the existing stock was over three months old – within weeks this position had been more than reversed, with over three quarters of the stock under three months old.
In store, the company went back to its roots, with a new promotional strategy focused on great value products.
This was supported by a re-examination of the supplier base. A series of competitive tenders were conducted which led to improved commercial terms and better margins.
In store, Comet went back to basics. More staff were put on the shop floor. Once selling, staff were encouraged to focus on margins rather than volume – in particular selling higher margin accessories alongside big ticket items.
The service operation for white goods was outsourced to an independent third party – reducing over-head costs. Meanwhile the servicing of brown goods was centralised with a single supplier to reduce the duplication of spare parts inventory.
A property committee was established to renegotiate all of Comet’s leases, leading to a £3.2 million reduction in the company’s annual rental bill as well as a switch from quarterly to monthly lease payments to smooth working capital flows.
By early autumn of 2012 there was clear evidence the operational turnaround was working.
An estimated 20% decline in like for like sales had been arrested with sales stabilised against the prior year. Meanwhile, EBITDA increased from a loss of (£26.2) million at the time of acquisition to a pro forma run rate at the end of September 2012 of £3.2 million.
Having stabilised the company, OpCapita began to receive unsolicited interest from competing retailers about the possible sale of the business.
Inside Comet the focus was on preparations for peak Christmas trading.
The credit insurers had refused to reinstate cover to support the acquisition of new stock ready for Christmas.
As rumours of a possible sale of the business surfaced in the media, suppliers began to aggressively cut their commercial terms and withdraw uninsured support for the business.
Unable to finance the incremental £75 million revised seasonal working capital build from their own resources the company’s directors were forced to file for administration protection for Comet Group Limited. While an accelerated M&A process was undertaken for Comet, the proximity to the company’s seasonal working capital peak meant the administrator was compelled to liquidate the business. The final stores closed on 18 December.
Sector: Electricals retailer
Investment Date: February 2012
Exit Date: December 2012