How private equity fat-cats triggered Debenhams’ downfall

Debenhams was doomed long before the coronavirus pandemic struck, experts have claimed, with the retail chain never recovering after being bought and sold by fat-cats who stripped its assets and collected over £1 billion in dividends. 

The department store collapsed yesterday and will be liquidated in the New Year after rescue talks with JD Sport fell through, drawing a line under 242 years of trading and jeopardising 12,000 jobs. 

It capped a bruising year for the retail sector amid the pandemic with Sir Philip Green’s Arcadia group also collapsing.

However, experts have now claimed the popular department store was doomed long before the virus, pointing fingers at a private equity consortium that took control of Debenhams in 2003. 

The retailer was taken over by a trio of funds in a £600 million investment deal. TPG, CVC Capital and Merrill Lynch made huge returns, despite owning the company for less than three years, collecting £1.2 billion in dividends.  

Under their ownership, they stripped Debenhams’ assets, including the £450 million sale of 26 properties. 

Debenhams then leased the stores back, for extremely high rents and, in some cases, 35-year-long deals. The deal involved all of Debenhams’ freehold properties including its flagship store on London’s Oxford Street.   

Among the bosses of the firms who bought Debenhams are TPG co-founders David Bonderman and Jim Coulter, US billionaires among the country’s richest people.  Bonderman is well known for a lavish personal life, spending millions on booking the likes of Robin Williams, the Rolling Stones and Paul McCartney for birthday parties. 

CVC Capital, meanwhile, is perhaps best known for its near £2 billion purchase of Formula One, a deal which saw it get huge dividend payments, earning up to $14 billion in 10 years of ownership. Forbes described it as the ‘sports deal of the decade’. 

The sale-and-leaseback deals saddled the store with expensive overheads and store leases just as shoppers were increasingly moving online 

Debenhams owed around £100m when it was taken private but, by the time it returned to the stock market, that debt had increased to more than £1 billion. 

The consortium was also accused of ‘cheapening’ the brand with its use of ‘megasales’ and promotions to flog items. 

The period under equity fund management has been described as the ‘root’ of the retail chain’s collapse yesterday – though the funds responsible and the billionaires behind them have gone from strength to strength in the years since. 

TPG Capital is a US investment firm that has more than $100 billion in assets. 

It was founded by David Bonderman, James Coulter, and William S. Price III in 1992 with Bonderman and Coulter still listed as controlling the firm’s UK operation.  

Bonderman is worth $3.7 billion and is a minority owner of the NBA’s Boston Celtics as well as the co-founder and co-majority owner of the Seattle Kraken in the NHL. 

He also served as a director of Continental Airlines, Ryanair, Virgin Cinemas and several other major companies. 

Bonderman was on the board at Uber before resigning in 2017 amid controversy over an alleged sexist comment he made to a female colleague. 

The billionaire is well known for his lavish personal life.  

In 2002, for his 60th birthday, he booked the Rolling Stones and John Mellencamp to play at his party at The Joint at Hard Rock Hotel and Casino in Las Vegas. 

Mellencamp played for an hour, The Rolling Stones played for an hour and a half, and comedian Robin Williams entertained guests between acts. 

The party cost $7 million and is thought to be have been one of the most expensive private concerts ever held.

He repeated the trick for his 70th birthday, hiring Sir Paul McCartney to give a private concert in front of more than 1,000 guests in Las Vegas. 

Robin Williams again performed a comedy routine with Bonderman also donating $1000 to each guest’s charity of choice.

In 2020, Forbes ranked Bonderman’s co-founder Coulter 359th on its US rich list with the billionaire worth $2.6 billion as of last October. 

Coulter has been involved with TPG’s investments in America West Airlines, Burger King, Del Monte Foods and Ducati motors. 

He also serves as a director on the boards of several companies and institutions, including Stanford University and Common Sense media.

Coulter’s wife Penny donated $100,000 to the Joe Biden presidential campaign. 

The CVC group have more than $75billion of assets under management. 

It is known for having bought Formula One for nearly $2 billion, a deal which saw it get huge dividend payments, earning up to $14 billion in 10 years. 

Forbes described it as the ‘sports deal of the decade’. 

During its time in charge of F1, CVC are thought to have earned up to $14 billion in fees, share sales and dividends, with the bosses thought to have profited the most. 

However, the company’s tenure of the sport was shrouded in controversy.

It was dragged through the courts in London and Munich over allegations – denied by F1 supremo Bernie Ecclestone – that he steered the ownership in CVC’s direction by bribing a German banker.

Ecclestone was not found guilty of any wrongdoing.  

CVC co-founder Steve Koltes and his partners, Donald Mackenzie, and Rolly van Rappard have been dubbed the ‘buyout kings of Europe’ with former chairman Michael Smith stepping down after 30 years in 2012 but maintaining an ownership stake in the firm.  

Smith was born in Leeds and has houses in Berkshire and Monaco. 

Mackenzie is a chartered accountant and holds an LLB degree from the University of Dundee, Scotland. He has previously been pictured in the media alongside F1 supremo Bernie Ecclestone.

Koltes is based in Switzerland and he is on the board of the Firm’s holding company and the board of the CVC Group. Prior to joining CVC, he worked for Citicorp from 1980 to 1987 in corporate finance and corporate banking in New York, London and Zurich. 

He also holds a BA Degree from Middlebury College, a private liberal arts college in Vermont, Canada.

Prior to joining CVC, van Rappard worked for Citicorp in corporate finance in London and Amsterdam.

He also holds an MA degree in economics from Columbia University, New York, and an LLM from the University of Utrecht, Netherlands.

The bosses are famously private with Mackenzie once saying he hates the firm being dragged into the limelight.  

The third firm, Merrill Lynch, was founded in 1914 and manages $2.3 trillion in client assets. It’s unclear which member of the huge firm, which is now an American investing and wealth management division of Bank of America, was behind the Debenhams ownership

It’s current president is Andy Sieg who previously served as an aide to George Bush snr during his presidency. In 2003, Stanley O’Neal was in charge, a man previously dubbed the ‘Most Powerful Black Executive in America’.

In the UK, Simon Mackenzie-Smith has been the Managing Director of investment banking for Merrill Lynch since 1996. 

He is currently Chair of Trustees of the school-based children’s mental health charity, Place2Be, and a Council Member of Heart of the City, an organisation which supports City-based SMEs. 

In his role with Place2Be he has worked with Kate Middleton, pictured opening a mental health charity in Clerkenwell with the Duchess. 

His net worth is unclear though he is well-regarded in financial circles in the UK. 

A keen shooter who breeds Herbidean sheep, Mackenzie-Smith was at the centre of some of London’s most high-profile deals, including the sale Selfridges to the billionaire Galen Weston for £628m in 2003. 

He has also advised firms like Rank, Wembley and Whitbread.  

Experts have pointed the finger at the private firms after Debenhams collapsed.  

Ian Cheshire, who chaired Debenhams in its final years on the stock market, told the Financial Times that the long leases signed by the private equity houses left the group ‘like a frog boiling in water’, with sales and profits stagnating but costs growing. 

He said: ‘There was a salvageable business in there but we could not get to it from where we were,’ he added. ‘Then the pandemic blew a hole in the side of it.’  

Veteran retail analyst Richard Hyman told the Guardian: ‘At the very time when the sort of massive changes we’re seeing today were embryonic, Debenhams’ wherewithal to react, ie money, was removed. 

‘It was removed into the bank accounts of private equity investors. That is the truth of it.’ 

Speaking in 2007 after the equity consortium sold off the retailer, Richard Ratner, of stockbroking firm Seymour Pierce, said: ‘We have argued for some time that the number of megadays and sales has been in danger of trashing the brand. 

‘We believe that this could have taken its toll.’ 

Debenhams has been a mainstay on UK high streets for 242 years, but is now set to shut its doors for good.

Now, Debenhams is to start a liquidation process after JD Sports confirmed it had pulled out of a possible rescue deal, putting 12,000 workers at risk. 

The department store chain said its administrators have ‘regretfully’ decided to start winding down operations while continuing to seek offers ‘for all or parts of the business’. 

It is understood that the collapse of rescue talks were partly linked to the administration of Arcadia Group, which is the biggest operator of concessions in Debenhams stores.

Debenhams said it will continue to trade through its 124 UK stores and online to clear its current and contracted stocks.

‘On conclusion of this process, if no alternative offers have been received, the UK operations will close,’ the company said in statement.

Debenhams has already axed 6,500 jobs across its operation due to heavy cost-cutting after it entered administration for the second time in 12 months.

Arcadia tumbled into insolvency on Monday evening, casting a shadow over its own 13,000 workers and 444 stores.