Looking at the takeover deal, the sale of the business and recapitalisation — which will complete on 26 January — includes a £257 million day-one gross debt reduction, extension of debt maturities to 2027 and £100 million of new capital to invest in growth.

The transaction is backed by the new owners, who are the holders of its First Lien Secured Notes representing over 70% of the outstanding amount. They’re led by Invesco, Man

It all means the gross debt drops from £593 million to £336 million and with the new capital being injected into he firm, it provides a “financing runway for the next four years”.

But John Hargreaves is understandably unhappy with the outcome. 

A spokesperson for the Hargreaves Family Private Office told Fashionnetwork.com: “John Hargreaves and the Hargreaves family are disappointed by today’s announcement by Matalan. From the day he founded the company in 1985 through to the current sales process, John’s focus and commitment has been to act in the best interests of the company, its employees, suppliers and business partners. 

“The Hargreaves family and Elliott [Advisors] bid would have left Matalan with less than £200 million of debt and ultimately ensured it was best positioned for long-term success. John Hargreaves does not believe that the deal announced today with the First Lien investors is an optimal outcome for Matalan and its key stakeholders. 

“In particular, he is concerned that it fails to address the needs of the business to adequately deleverage its balance sheet and secure an appropriate long-term owner for the company, both of which were central to the Hargreaves family-led bid.”

NEW OWNERS ARE UPBEAT

Meanwhile, Invesco, one the world’s major investment managers, said on behalf of the ownership group: “Invesco has been an investor in Matalan for over 10 years and is excited about the prospects for the business. Having been one of the investors who supported Matalan with additional financing during the pandemic, Invesco is now pleased to play its role in this transaction by ensuring that the debt burden carried by the group will be very substantially reduced. 

“Present market conditions are challenging for many retailers, but Matalan is a large and successful business with clear strategic objectives and many compelling growth opportunities. Our firm, and the other First Lien Noteholders who are backing Matalan, have huge confidence in the prospects for the business.”

And CFO Stephen Hill added: “Matalan is a fantastic business and I am pleased that with the support of our First Lien Noteholders, its ongoing future has been secured via a materially lower level of debt and a reset balance sheet. As we transition to new ownership and having worked with John and the Hargreaves family for over 20 years, it would be remiss not to emphasise the contribution they have made to building the great business we have today and the many opportunities that lie ahead. On behalf of the Matalan team, I would like to express our sincere thanks and appreciation.”

As for its sales, the company also said that it continues to deliver year-on-year sales growth across both its store and online operations with Q3 growth of 7.3% and a 14.6% increase in the specific December peak trading period. Across the financial year as a whole, it expects to achieve 10.9% revenue growth. 

But it added that recent profitability has been adversely affected by a combination of market conditions and the approach taken to its buying plan for AW22. Its stock levels going into autumn “proved to be too ambitious and front-loaded”, entering the half-year in September with £45 million more inventory than a year ago. 

The company said it lacked sufficient flexibility to effectively manage through what subsequently would prove to be a very slow start to the season as warm weather stifled demand and the cost-of-living crisis unsettled consumers. 

In order to manage its inventory levels, it invested heavily in discounts meaning Q3 and December markdown levels were £17 million and £18 million higher than last year. The season also saw significant cost pressures, such as energy and labour inflation, compounded by supply chain issues, and an unfavourable foreign exchange environment. 

It means the company expects to earn much less for the year than it had expected just a few months ago. EBITDA should be £30.1 million, down from a forceast of £81.2 million. But it said it has successfully cleared seasonal stock and is entering this year with a much cleaner stock shape. Its SS23 buying approach has also been adapted. 

Meanwhile, some of the inflation rate and foreign exchange pressures have significantly improved in recent weeks. The reduction in pressure, including a renegotiated freight contract that reduces cost by £24 million in the coming year, and a reduction in rateable values that reduces expenses by £4 million, will all help to support profitability. A further boost should come from the launch of its new website, which is on track to go live in early spring, as well as the ongoing automation process within its supply chain.

It all means that earnings in FY24 should be £76 million and they should go up to £114, million by FY26.