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How the Barclay family is losing grip on its shopping empire

very illo
very illo

If Aidan Barclay was feeling the strain from his family’s financial troubles, he showed little sign of it as he hailed a deal to shore up their retail empire, Very Group.

The support of Carlyle and Abu Dhabi-based IMI would be “invaluable”, providing “long-term, experienced institutional sponsors” who would be able to “understand our business extremely well”, he said.

Underpinning this rhetoric was a £125m lifeline from the pair to Very, which for decades has been in the grip of the Barclay family. Bit by bit, however, it appears to be slipping away.

Aidan and his brother Howard have paid a steep price that will see them relinquish a degree of control in return for a much-needed injection of funds. It hands Very enough cash to see it through until at least June 2025, according to the directors.

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Some £85m of the package, all from Carlyle, will be made immediately available. Both Carlyle and IMI will be handed a seat on the company’s board, giving them considerable sway over the day-to-day running of the business and its long-term future.

For IMI – International Media Investments – it marks a departure. The company is otherwise the vehicle of Sheikh Mansour’s global media ambitions, and has got itself wrapped up in Very’s world of hire-purchase flat screens as part of its pursuit of control of The Telegraph alongside RedBird, a US private equity firm.

RedBird IMI, backed by Sheikh Mansour, loaned the Barclay family £600m to help repay a £1.2bn debt to Lloyds Banking Group
International Media Investments (IMI) is the vehicle of Sheikh Mansour's global media ambitions - ABDULLA AL-BEDWAWI/UAE PRESIDENTIAL COURT/AFP via Getty Images

In December, RedBird IMI, a fund 75pc backed by the Sheikh, loaned the Barclay family £600m to help repay a £1.2bn debt to Lloyds Banking Group, in exchange for an option to convert the debt to ownership of The Telegraph.

That plan is currently in limbo under scrutiny from regulators as a potential threat to press freedom.

The balance of the Lloyds borrowing, overdue for repayment by a decade, was provided directly by IMI and secured against Very and related assets. It is this loan that has landed “a privately owned investment company focused on building a portfolio of quality media assets across the globe” with a seat on the board of the mail order retailer formerly known as Littlewoods.

The Sheikh is at least more familiar with Carlyle. The firm’s seventh-biggest shareholder is Abu Dhabi’s sovereign wealth fund, Mubadala, with a stake worth almost £750m.

For the Barclays, the duo means yet more debt. Over many decades, the family assembled a sprawling collection of assets that at one stage stretched across media, retail, luxury hotels and property – an empire built on borrowing which has begun to unravel.

Obtaining a full picture of the health of Barclay family-owned businesses is difficult because of the highly complex structure in which they are held, including Very. Ownership is opaque thanks to a giant web of companies that usually ends offshore in jurisdictions requiring little disclosure.

Nevertheless, the strain has been most apparent at Very, which provides shoppers with credit to buy an eclectic range of products, including clothes, footwear, furniture and gifts. Its overall debt pile has climbed above £2.5bn.

The 2021 collapse of Greensill Capital forced Very to quickly replace £280m of this borrowing. It led the top UK company in the group, Shop Direct Holdings, to turn to Carlyle, a famously sharp Wall Street player. That loan, of which £123m went to Aidan to pay off loans he had made to the company, is due for repayment in July.

Aidan Barclay hailed a deal to shore up the family's retail empire, Very Group
Aidan Barclay said the support of Carlyle and IMI for Very Group would be 'invaluable' - Oli Scarff/Getty Images

The Carlyle loan came at a steep price. It carried a punishing interest rate of up to 29pc via a complicated debt instrument called a payment-in-kind toggle. Very can either pay the interest in cash at 14.5pc, or add to the total owed at a higher rate.

Carlyle declined to comment on the status of the loan following its latest cash injection, which came lower down the chain of Very companies and sees it represented on the board for the first time. “We look forward to working closely with them [Very],” said Taj Sidhu, of Carlyle.

Carlyle’s decision to step in again comes after it consulted heavyweight advisers from American law firm Akin Gump Strauss Hauer & Feld and investment bank Jefferies.

The Barclays are to share the boardroom more than 20 years after Aidan’s father, Sir David, and his twin brother, Sir Frederick, acquired Liverpool-based Littlewoods for £750m.

They merged it with the home shopping arm of the Great Universal Stores conglomerate and jettisoned hundreds of stores as the company sought to transform itself into a more modern online retailer.

The Littlewoods catalogue was discontinued in 2015. Along the way, its name changed to Shop Direct in 2008, and then in 2020 another corporate rebrand saw it become the Very Group.

Carlyle and IMI have lent their way in after multiple attempts by the family to cash out failed.

In 2017 senior executives were summoned home from holiday as a long-running sale process came to its climax with bids from the private equity firms Apax and BC Partners that would have handed the Barclays more than £2bn for their shares. At the crucial moment, however, Aidan revealed they would not sell for less than £3bn.

Next came plans for a blockbuster stock market float in 2021, although the proposed move raised eyebrows across the City. It would have been the first time that the family had exposed one of their flagship companies to the glare of the public markets.

However, they had been encouraged by a successful £575m bond issue. Very had also enjoyed record trading during the pandemic, chalking up nearly £2.4bn of turnover on the back of a boom in flat-screen TVs, sportswear, and textiles, all fuelled by rock-bottom interest rates.

Again, valuation proved a stumbling block. The Barclays thought its shift from bricks and mortar into e-commerce would enable it to command the a price on similar terms to Ocado or even Amazon.

A source close to the float discussions said: “The spread on valuations was huge. The family were trying to value it on a tech multiple as if it was Amazon at £4bn. The banks were saying it was a sub-prime consumer lending business and only worth £1.4bn at a push.”

A valuation of £4bn was quickly slapped on the business, equivalent to nearly 50 times the pre-tax profit of £81.7m that year – the highest it had ever posted.

But the exuberance proved short-lived. Market volatility and the subsequent tumbling valuations of technology stocks once the pandemic ended prompted the Barclays to shelve the plans.

Now, Carlyle and IMI must try to steer Very and a concerned collection of fellow lenders through much less benign waters.

Clive Black, an analyst at Shore Capital points out that Very’s prospects, along with any remaining hopes of wooing the City, have been dented by the sharp shift in interest rates.

“There has been a dramatic change in the credit cycle,” Black says. “Very will have gone backwards on the back of that, and its valuation as well. That has been a real challenge for them and their customers.”

mike ashley
Retail entrepreneur Mike Ashley considered providing £35m of Very's £50m securitisation facility extension in December - Jamie Lorriman

More than 90pc of sales are funded by its £1.6bn “securitisation facility” – consumer credit – which is provided by a consortium of banks. HSBC is by far the biggest player in this consortium. Very is also a client of NatWest, although the bank reduced its exposure last year, sources said.

Very announced a £50m extension to its securitisation facility in December. In a sign that the company is flirting with more unorthodox sources of finance, billionaire retail entrepreneur Mike Ashley considered providing £35m of this before ultimately deciding against it.

Very’s half-year results, published on Tuesday, revealed that sales rose just 0.6pc to £1.27bn from May to December 2023, while the company swung to a £2m loss following profits of £2.1m in 2022. Bosses blamed a jump in finance costs, which rose from £70.4m to £96.9m.

Uncertainty about the true state of the company’s finances is compounded by an unconventional set-up, in which large fees are paid to other businesses under the family’s control. Very forked out £67.4m on “purchases of services” in the six months to December 2023, including £44.1m to Yodel – the delivery business recently saved from the brink of collapse by a rival.

The company is also owed a further £517m from “fellow group undertakings”, including £503m from Shop Direct Holdings Limited.

Where Carlyle and IMI now rank in the family’s financial structure remains to be seen. The Barclays have pledged a string of UK companies as collateral to IMI, including the Very Group.

That is alongside a similar pledge to Carlyle, which was granted collateral over various family assets for its original loan. They are believed to include a stake in the Beaumont Hotel in Mayfair held via a Cayman trust.

The Barclay family will hope the latest cash injection will provide some breathing room and stability after a torrid few months. Relinquishing some control over their biggest asset will not have come easy to the family. But after decades of debt-fuelled deal-making, their options were dwindling.

Aidan Barclay said: “[Carlyle and IMI’s] commitment underlines the confidence they have in the group, and their contribution to the board will be invaluable as we look to the future.”