The retail surgeon who may be the only hope of survival for some firms
Hilco's Paul McGowan is set to be one of the new masters of the retail universe next year. James Thompson reports
Saturday 29 November 2008
Early on Wednesday afternoon, Paul McGowan, the chief executive of the retail restructuring specialist Hilco UK, thought he had a deal to snap up Woolworths' retail chain for £1 – along with up to £300m of its debt – in the bag.
But later that afternoon Mr McGowan received an unwelcome phone call that Woolworths' banks had pulled the plug on the 800-store retail chain and its wholesale entertainment division, EUK, putting it into administration and bringing to a sad end 99 years of trading on the high street for Woolies.
The administrator Deloitte eased the ire of Mr McGowan when it hired Hilco on Thursday to assist in the management of Woolworths' retail estate. But his involvement is likely to be one of many over the coming months, as a whole host of retailers require urgent surgery in 2009. In fact, Mr McGowan and bosses at other restructuring firms will assume the mantle of the new masters of the retail universe over the next year.
But who is Paul McGowan; what is Hilco's track record of restructuring, as well as asset stripping the carcasses of the high street, and why does he wield so much power in the retail sector?
Over the next year, Mr McGowan's skills as an accountant and retail restructuring specialist will be at the fore of numerous distressed retail situations.
As a founding partner of Hilco UK, Mr McGowan, who has a sharp and somewhat dark sense of humour, is a wealthy chap. He is understood to own more than a 20 per cent stake in the UK business and has homes in London, Northern Ireland and Majorca.
It is fair to say that Mr McGowan, who largely shuns the media, is feared by UK retailers, despite the fact that Hilco is often the only thing separating them from the retail crematorium. He is also feared because retailers know that if a journalist gets wind that a store group is working with Hilco, the writing is already probably on the wall.
While Hilco also has licensed insolvency practitioners, its modus operandi can be different to that of the recovery specialists Kroll, Deloitte, KPMG and MCR that are often used for retail administrations. Hilco will offer to provide funds to a retailer in the form of a fixed or floating loan, in order to allow them to continue trading and deliver an 11th hour turnaround strategy. Obviously, Hilco gives them a stringent timeframe and if the turnaround fails they move to get their money back.
Another industry source said: "When companies are in trouble and they need cash, Hilco will provide the funding to allow management to put their last-minute recovery plan in place." He emphasises that when Hilco does get involved with a retailer, it works with them to try to ensure a positive outcome, but it exists to make money and drastic action is often necessary, such as administration.
However, Hilco is anything but a one-trick retail pony. It has taken stakes in retailers and helped to turn them around, such as its work with the investment fund Dawnay Day to acquire the loss-making stores of the German department store group KarstadtQuelle for €450m (£370m) in 2005. Hilco also buys debt at knocked-down prices in companies and then sells it a higher price or snaps up the equity when the situation deteriorates.
While the price tag of £1 on Woolworths' retail chain was no doubt unpalatable for many at the company, it is understood Mr McGowan believed it was the best option to safeguard, at least in the short-term, thousands of jobs, stores and the brand on the high street.
Before the retailer's banks pulled the plug on Wednesday night, Mr McGowan's team had been speaking to potential purchasers about keeping the brand on the high street, albeit in a trimmed-down version of 200-300 stores. Hilco had also been speaking to more than 20 retailers about purchasing the leases on a number of other stores.
The type of distressed companies Hilco deals with means that Mr McGowan can get a bad press, as the lead vulture coming in to pick over a retail carcass. However, another industry source said this was unfair and that, if retailers got in touch six to nine months earlier, the kind of severe action Hilco often has to take would not be necessary. The source said: "He [Mr McGowan] often gets involved with situations when the retailers are at death's door so he is sometimes painted as a pariah, but people only really go to Hilco when they are desperate; when they have tried [and failed] to put changes in."
However, Hilco's involvement can be very short-term with a retailer. For instance, Hilco bought the discount fashion chain MK One from Baugur, the Icelandic investor, in the spring for an undisclosed sum just a few weeks before it was put into administration.
Before he got involved with Woolworths, Mr McGowan was arguably best known for his involvement with Allders, the department store chain that went bust in 2005, and selling off the Littlewoods stores, as it disappeared from the high street to become a multi-channel retailer. Hilco was part of the consortium that bought the debt of the investment bank Lehman Brothers in Allders for 26p in the pound. Hilco then put Allders into administration, hiring Kroll for the role, which in turn appointed Hilco to advise on stock clearance and sell the stores. The consortium was then thought to have recouped 90p in the pound. It was reported that Allders' pension-holders subsequently found a £70m hole in its pension fund, although there is no suggestion this was to do with the actions of the consortium.
Back to the present, Mr McGowan is likely to spend much of his time before and shortly after Christmas working with Woolworths and Deloitte. Hilco is expected to kick off a massive stock clearance programme soon, but the scale of this will depend on whether potential suitors want to buy Woolworths as a slimmed-down going concern or whether rival retailers just want its stores.
Mr McGowan will soon be dusting off his dossiers on the retail sector's other ailing patients. Many will experience sharp pain from Mr McGowan's knife, but for others this retail surgeon may be their only chance of survival. Mr McGowan's profile may be minuscule compared to Sir Philip Green or Sir Terry Leahy, but for the next 12 months he could have a far bigger influence on the shape of the high street after the recession.
Paul McGowan New power on the high street
Paul McGowan, who is 46 and an accountant by trade, moved to these shores from Belfast to join KPMG in the Eighties, but became bored and accepted an offer from a client with a string of fashion-related businesses to be their assistant finance director.
He had a spell at Jacqmar, a women's fashion chain. But Mr McGowan cut his restructuring teeth only after he was headhunted to run the British subsidiary of Leslie Fay, a womenswear firm that ran concessions in department stores. Here, he gained management experience that also included administration, supply chain and retail operations before becoming Leslie Fay's chief executive.
In 1996, Leslie Fay pulled out of the UK and Mr McGowan was given a baptism of fire in how to close down and sell off parts of a business. Three years later, he joined forces with the former Harrods executive Paul Taylor and convinced its American parent, Hilco Trading, to set up Hilco UK, which specialised in store closures. Industry sources said the two Pauls were a good combination.
Mr McGowan, a Chelsea fan, likes to quaff a beer and dine at London's poshest venues, but with a wave of retail insolvencies predicted he may find his social opportunities limited.
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