Derek Pain: After many false dawns, will new equity men finally garner results?

No Pain, No Gain
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The Independent Online

Reincarnation is almost an addiction for some companies, particularly small caps. Take the latest manoeuvres at a little group called Garner, which has attracted the attention of two entrepreneurs and is about to get another lease of life. This revitalisation exercise, of course, requires the obligatory new name.

When I first came across the group it was known as E Upton & Sons and ran department stores, mostly in the North-east. A move into property led to the creation of Upton & Southern. For once, the property/retail mix did not go too well and the group was reborn in 1992 as a pure retail play. Then it spread its wings again, buying 51 per cent of head-hunter Garner.

These changes were spread over some 30 years. But since the turn of the century the reincarnation process has accelerated. Full control of Garner has been obtained and a Singapore executive search operation acquired. In addition, retailing has been ditched and the name Constellation Corporation embraced. The human resources image was subsequently reinforced by adopting the Garner moniker. Now, the merry-go-round turns again and, lo and behold – Norman Broadbent is the name with which this king of change will face the world. The Broadbent business was acquired two years ago.

All this activity, which involved a number of capital reorganisations, has no doubt provided lucrative income for many City advisers. Shareholders, however, have lost out. Indeed, many smaller shareholders, whose stakes had already been reduced by corporate changes, found themselves wiped out when it was deemed their interests were too small to be tolerated anymore in one capital rejig.

For many years the group enjoyed an army of small shareholders. I was one. Like so many I was eliminated in the great cull, one of the most severe I have experienced. The shares were already deep into the penny dreadful category and I had long abandoned hope of achieving any reward; they had, in effect, already been reduced to capital gains tax fodder.

After its venture into property, the group disappeared from the stock market radar. Its 1992 return attracted the attention of private client stockbrokers. The group seemed to have considerable potential and I recall attending a rousing presentation – then a regular feature of City life – that helped persuade me to invest.

It was one of my worst decisions. A few years after the presentation it was clear the new retailer on the City block was unlikely to challenge shopkeepers.

And the later recruitment embrace has not yet provided much reward. The arrival of private equity men Pierce Casey and Jon Moulton could, however, change the fortunes of this perennial disappointer. Indeed, their presence has already achieved a short-term flurry, sending the shares to their highest for about a year.

Their deal is accompanied by another capital reorganisation with 30 shares being consolidated into one unit, giving a theoretical price of 45p. Various loans are also being satisfied by the issue of new shares. Messrs Casey and Moulton are pumping £2m into the business, collecting 57.6 per cent of the enlarged capital in exchange.

The Garner head-hunting operation was created by Andrew Garner, the current chairman who steps down to chief executive when the deal is completed. He acquired the Broadbent enterprise, founded in 1982, two years ago, but he probably paid too much. As part of the Casey/Moulton cash injection, the £5.5m cost of Broadbent is being scaled down.

Garner and Broadbent are currently trading profitably. But last year the group, capitalised at only £2.5m, is expected to have suffered a £3.5m loss.

Following false dawns there must be a strong chance that this seemingly ever-changing business will start to post real progress. After all, the new arrivals – Mr Casey is to become chairman – have good track records. Of the two, Mr Moulton, 59, is the more widely known. He founded and ran the high-profile Alchemy Partners private equity group but last year surprised the City when he quit following a policy disagreement. Mr Moulton then founded Better Capital which backed a £13m buy out of the British arm of Reader's Digest in April.

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