On Jan. 8, the New York-based turnaround firm reached a tentative agreement to acquire certain assets of the company, which fell into receivership, similar to bankruptcy, on Jan. 5. Financial terms of the proposed deal weren’t disclosed. Auditing firm Deloitte is serving as the administrator of the proceedings. Certain other units of the company filed for insolvency separately and will not be acquired by KPS Capital, including the company’s German unit, Rosenthal AG.
The firm declined comment on the potential transaction.
The insolvency filing may allow KPS Capital to make a fresh start with its investment, since such a filing brings all creditors on the firm’s Euro 449 million ($593 million) net debt to the negotiating table. Yet the troubles of 250-year-old Waterford Wedgwood may not be as simple as an untenable debt load. The company has lost money for the past five years, and industry columnists have speculated that part of the reason for the declining sales has been a failure to protect the historic, upscale Waterford Wedgwood brand.
While branding is not one of KPS Capital’s specialties, the firm does have a history of working with unions, which have a significant presence at Waterford Wedgwood. KPS Capital’s Web site has a section dedicated to this aspect of its approach, noting that it has “sponsored many transactions in partnership with unions, and unions bring a significant number of quality investment opportunities to our attention every year.” The section also includes positive quotes from Leo Gerard, the president of the United Steelworkers union, and Thomas Buffenbarger, the president of the International Association of Machinists.
“Unions work with KPS because of our respect for the collective bargaining process, our long history of working constructively with unions in connection with difficult financial transactions and buyouts, and our successful track record in creating viable and profitable going concerns,” the firm states.
That track record is sure to be tested if this deal is consummated. Waterford Wedgwood has about 1,868 employees in the United Kingdom. On Jan. 12, Deloitte disclosed that a total of 367 jobs would be eliminated across two of the company’s units, Josiah Wedgwood & Sons and Royal Doulton. In its statement disclosing the layoffs, Deloitte said “every effort is being made” to avoid further cuts. Media reports indicate, however, that members of KPS Capital’s team plan to meet with representatives from the company’s trade union shortly, while the sting of this round of layoffs is still fresh.
Another plus for KPS Capital in the experience department is that the investment won’t be the firm’s first cross-border transaction. Previously, it owned and exited Ebro Electronic GmbH, a German manufacturer of instruments that measure temperature, pressure, humidity, and pH. The firm also spun off a European subsidiary of Cloyes Gear and Products, a maker of powdered metal components for automotives.
Manufacturing is KPS Capital’s investment sweet spot. The firm targets manufacturing, transportation, and service businesses, seeking to invest between $25 million and $150 million per deal. KPS Capital typically purchases companies that are operating at a loss, are in or preparing for default or bankruptcy, and have revenues of at least $200 million.
KPS Capital Partners recently extended the terms of the limited partnership agreement on its second fund, a $404 million pool, in order to allow it to re-invest distributions into existing investments, instead of immediately returning the money to investors, according to LBOWire.