Focus recap to follow wickes sale

Duke Street Capital is planning to recapitalise Focus in the first quarter of 2005, alongside completion of the £950m sale of Wickes to trade buyer Travis Perkins.

“Focus has some exciting opportunities ahead of it, which we intend to develop in association with management,” said Edmund Truell, executive chairman of Duke Street. “That part of the business was never on the block.”

Duke Street and minority investor Apax are still building value at Focus. The business has been in the middle of a three-way merger with Great Mills and Do-It-All, and was also converting former Wickes stores to its franchise. That process is now coming to fruition, with Focus trading clean and on course for a modest profit of around £75m. Like-for-like sales are also compelling compared with its main competitor, B&Q.

The recapitalisation will follow deleveraging of the business, with some of the proceeds from the Wickes sale repaying debt. Focus Wickes has about £600m in debt and newly single Focus aims to add 40–50 new stores.

The recapitalisation of Focus would probably include existing lenders, which are led by HBOS, and involve senior debt – with the sponsors reviewing their options on subordinated debt.

Goldman Sachs has been reviewing options for Focus Wickes for the last three to four months.

The company has never broken down Ebitda between the two divisions, but analysts at RBS said the sale represents a multiple of just over 11x; they had been expecting a maximum valuation of around 6.5x.

“We took a significant risk when we bought Wickes in 2000, but we have done a lot of work transforming it over the last four years and those efforts have now paid off,” said Truell.

Since it entered Focus in 1998, Duke Street and funds have invested around £200m.

Travis Perkins outbid around four other trade buyers to acquire Wickes and has been in talks with Duke Street about a potential sale for more than two years. Saint-Gobain and Wolseley were among the other trade suitors.

There was also unsolicited interest from private equity houses, although bids from financial buyers were generally not as high as those from would-be trade buyers, which can generate synergies on purchasing and distribution, and head office cost savings.

Permira, CVC Capital and Cinven were among firms provided with papers. Goldman also had expressions of interest in Focus Wickes as a going concern, although those were more tentative.