Rod Richards: High street spending

Rod Richards, managing partner at private equity firm Graphite Capital, speaks to MandADeals about recent deal activity and the future of retail investments.

The trials and tribulations of the high street have been splashed across the front pages at an alarming rate during the past two years as the sector felt the bite of the recession before most.

Finding investable opportunities in the area has become an increasingly difficult task, with seemingly successful businesses slipping very quickly into the red and disappearing from view shortly after.

Richards says that while the strategy the firm used to employ is not as relevant in today’s market, there is still money to be made through retail buy-outs.

The investment firm has held interests in high street staples such as Maplin and Game, and undertook what it describes as ‘category killer’ move with both.

In a similar vein, Graphite took Ottaker’s books from five shops to 100 before it divested its interest in the company to HMV, netting it a six times return. Its ‘category killer’ strategy saw Graphite attempt to dominate the high streets of small and mid-sized towns which didn’t have a suitable bookshop, by gearing up the business.

However times have changed, and Richards says the arrival of digital rivals has put paid to this option.

‘Ottaker’s used to make most of its money in the period up until Christmas, that was where it made its real impact, but now you have the Tesco issue.

‘Along with Amazon they both cream off the top ten titles in the market.’

The opportunity for rollouts is still there, Richards adds, but the concept needs to be a lot stronger with a high degree of originality, a trait which he says is often employed around the world.

‘In the US people come up with a concept which doesn’t exist one year, and then ten years later you can’t get away from it everywhere you go.’

However the upshot of the market turmoil being experienced by the retail sector has meant that the costs associated with a business roll-out have dropped.

‘Nowadays you are not paying large amounts to open up. The landlord will often pay the fit-out cost, you can get the location you want and agree a turnover related rent,’ Richards explains.


In July Graphite sold its stake in British shoe retailer Kurt Geiger to US-based fashion business The Jones Group. The £215 million sale netted Graphite a £120 million return on its initial investment.

However, Richards says that exiting investments in today’s market has become a balancing act.

‘The call you have to make is: if you don’t sell it, will it go backwards, in which case definitely sell. If you don’t see it going backwards, will you get a better price in two or three years?’

Richards also believes that the positioning of UK banks also means that structuring bigger deals often results in a syndicate transaction.

‘In this part of the market banks only have an appetite for £30 million odd deals, so as a result you need to throw three banks together to fund the buy-out.

‘Then you have the fun and games of having a syndicate of backers, so there are some pretty big barriers for someone looking to buy a business in that price range.’


For buy-outs to pick up and portfolio companies flourish, Richards thinks that, like many, the future depends on the state of the Euro.

‘We reckon we have good relationships with the banks but we are definitely finding it harder to back the growth of businesses which are doing well, and that is the first time we have found that.’

He also believes that the so-called year of private equity fundraisings will have to be postponed, as there is a distinct lack of capital out there for new funds.

With too many investments still on the books at many firms and needing to be divested, and large amounts of capital in old funds to play with, Richards says that it cannot be just a case of unloading them as rushed deals will only be viewed in bad light.


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