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A tight turn

Millfield’s disclosure that its talks with a buyer have fallen through and that it has now brought in turn-round consultants poses the questions of why did the deal fail and can the consultants revive the business?

Several theories have been floated on why the buyer, thought to be Aegon, walked away at the 11th hour. Several industry sources suggest the buyer met resistance from the five product providers that loaned Millfield 15m to launch its multi-tie, with those firms unwilling to write off the debt in a move that would effectively help a rival.

Some IFAs have suggested there might have been an issue in integrating the models of Millfield with that of Aegon-owned Positive Solutions.

Park Row commercial director Carey Shakespeare, having experienced BBB’s recent corporate turn-round, says: “I hope they fare better than we did. Some highly experienced corporate recovery experts were brought in to our organisation at very high levels and despite valiant attempts to save the company’s future, they were unable to do so, despite believing for a great period of time they could. I wish them well as no one wants to see Millfield fail.”

The turn-round consultancy brought in by Millfield, thought to be London firm Alix Partners, has been appointed to explore possible options for Millfield’s future.

Turn-round consultants typically try to ensure the business’s costs are aligned with its revenues or margins as well as focusing on risk management, revisiting business plans and communicating with key external and internal constituents. This can also often include restructuring a company’s debt.

FAM chief executive and Countrywide founder Jim Gaskin says the firm’s first obligation is to the regulator.

He says: “In our industry, in terms of hierarchy of needs, the first priority has to be the regulator. If you do not satisfy its capital adequacy requirements you will go under.”

He does not believe there are many options available to the group and is not optimistic about its future.

He notes: “They need to get the capital from somewhere but I do not know who would invest in them. Insurers generally pick up IFAs because they want the management team and distribution but no one else is going to invest in IFAs unless they are turning a profit. To do so, they need to improve the revenue and cut the costs to redress the balance.”

He says if a private investment company rather than an insurance company buys Millfield, it would need to pick it up for next to nothing for a successful turn-round and to resell the company.

“But if there is a capital adequacy shortfall, they need to move quickly, and the FSA needs to agree to whichever measures are suggested,” says Gaskin.

Lighthouse group chief executive Malcolm Streatfield says the failing of many firms has been down to them expanding away from their core businesses. He believes this could form the main thrust of the turn-round consultants’ work.

Streatfield says: “These turn-round experts come with a great deal of skill. I expect that they will try to get the firm back on track to its main proposition. When companies move away from their core business and experience a great deal of rapid growth, it builds up the cost base. It is then up to the appointed consultants to close down parts of the business rapidly, possibly selling off their non-core elements. Once it decides what it is – a national IFA or a network for instance – it should probably close down its other sections to reduce cost base.”

Corporate recovery expert Lansdowne Financial Management director Paul Felton-Smith says if there are capital adequacy problems, it makes sense for the company to look to those with deeper pockets – such as product providers – to raise some more cash.

He says they will need to move relatively quickly if there are issues, although in Millfield’s case no deadline has been set by the regulator.

Felton-Smith says: “They will look at all the options. It could be a single buyer, such as a provider or a joint venture to gain a new injection of equity. They will look at the cashflow forecast and how quickly they are able to turn the company round.

“The regulator will also want to know what caused the issues in the first place and put controls in place to prevent the problems from recurring.”

Streatfield warns of the dangers of rushing the due-diligence process, which might be a temptation if issues need to be addressed at relatively short notice.

He says: “If you buy an IFA you buy a share of the capital and also pick up the liability. There is a huge amount of due diligence that needs to take place to ascertain the extent of that liability. It can take many months and you take a huge risk if you rush the process of due diligence. It can prove very expensive if things come out at a later date that should have been uncovered during that process. They need to cover themselves and downsize the risk.”

Felton-Smith says when turn-round consultants are appointed, it raises doubts over whether the known problems are the tip of the iceberg and adds if the problems have already been flagged, it could make a trade sale more difficult.

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