Hong Kong-based private equity firm LionRock Capital has inked an agreement to invest 100 million pounds ($129.7 million) in C&J Clark Limited (Clarks), one of UK’s oldest footwear brands, for a majority stake in the company, the investor announced on Wednesday.
The investment will enable Clarks, a 195-year-old British footwear brand with a presence in over 100 markets worldwide, to “position the business for future long-term sustainable growth” and to leverage LionRock Capital’s resources to further grow globally, and most notably in China and the rest of Asia Pacific, said the investor.
If the proposed investment is approved in a shareholders’ vote in December, LionRock Capital will become a majority shareholder, while the Clark family will remain an investor.
The deal is also subject to a Company Voluntary Agreement (CVA) for Clarks’ businesses in the UK and Ireland in relation to its store portfolio.
The CVA is an administration under UK insolvency law that allows an indebted or insolvent company to reach a voluntary agreement with creditors regarding repayment of its corporate debt over an agreed period of time. In Clarks’ case, the landlords of the firm’s stores will have to accept a proportion of their store’s revenue as rent instead of a fixed lease.
The CVA is being launched out of “absolute necessity” in order to address the permanent shift in structural shopping behaviour as a result of the COVID-19 pandemic, said Philip de Klerk, interim CFO at Clarks, in a statement.
“Like many businesses in our sector, the impact of the COVID-19 pandemic and the current economic uncertainty has created a tough retail environment,” said Klerk. He said that the investment from LionRock Capital and the firm’s “focus on cash management and cost control” will provide capital for its “seasonal working capital needs and its transformation strategy.”
He said that the firm plans to move 60 of its 320 stores in the UK to nil rent. It has not shut down any store so far.
COVID-intensified capital pressure
Somerset-based Clarks was founded in 1825 by brothers James and Cyrus Clark, and has since been controlled by the Clark family. The firm operates retail, wholesale, franchise, and online channels worldwide supported by nearly 10,000 employees.
Britain’s Sky News first reported in late September that LionRock Capital and investment firm Alteri Investors were two remaining bidders for the debt-ridden UK footwear manufacturer and retailer that has been looking for a share sale to re-position the business and weather the pandemic’s impact on high street.
“The retail trading environment in the UK has been under pressure for some time. Clarks’s UK business has been faced with weaker consumer confidence and reduced footfall. In the midst of Clarks undertaking its transformation plan, COVID-19 exacerbated these challenges, with working capital and turnover significantly impacted, placing acute liquidity pressure on the group,” said Gavin Maher, partner at Deloitte.
“The turnover rent model better aligns the risk and reward of trading during these uncertain times and the CVA, together with the proposed investment from LionRock, provides a stable platform upon which the management’s transformation strategy can be delivered,” said Maher.