For Handy Hardware, a sale and a sea change
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Back in March, Handy Hardware was a member-owned co-op intent on staying that way, even as it struggled through a reorganization under bankruptcy protection.
But with a stroke of a pen, that all changed in April when it was announced that Greenwich, Conn.-based private equity firm Littlejohn Management Holdings would acquire Handy and run it as an independent distributor.
Despite the loss of the co-op structure, it was the best result the members could have hoped for, according to Handy management.
“[Members] wanted to see Handy remain independent,” said Morrie Aaron, president of MCA Financial Group, Handy’s financial advisory firm. “And it has. It’s still there to provide a consistent transparent, no-frills low-price model around which they can build their business.”
According to Handy, if the deal is approved by the court, then Handy would emerge from bankruptcy this summer as a subsidiary of a Littlejohn portfolio company, while maintaining its Handy Hardware brand.
The deal — which has the support of Handy’s board of directors, its member advisory committee and member equity committee — is expected to gain court approval in July 2013, Handy said.
According to Aaron, the deal includes Littlejohn payments of $15 million in Debtor in Possession funds, and roughly another $15 million in claims and payment to unsecured creditors, working capital and other costs. For that, Littlejohn takes Handy’s inventory, accounts receivable, brand, and miscellaneous assets.
Mickey Schulte, VP marketing and purchasing, said the deal achieves the goal of exiting bankruptcy as an independent distribution company offering low prices and good service. “Our members will now become customers,” he said. “But that doesn’t change anything, they are still family to us.”
Handy described Littlejohn as a company with “substantial holdings in the wholesale distribution business and the hardware industry.” Its portfolio includes hardware products distributor Howard Berger Co. and Installed Building Products.
Aaron said that Howard Berger and Handy are expected to be sister companies, operating independently of each other.
In a note to members alerting them of the agreement, Handy’s board of directors explained: “Current Handy member dealers will not have to contribute additional equity as part of the plan, and Littlejohn will also eliminate the 2% warehouse service fee upon closing.”
The 1,300-member regional co-op filed for Chapter 11 bankruptcy in January.
A major cause of the bankruptcy was an ill-fated attempt to expand into the Southeast, an effort that began to take shape in 2008 as the housing and home improvement markets and the general economy hit hard times.
A groundbreaking of a new, $20 million state-of-the-art distribution center took place in 2009, an investment the co-op described at the time as a growth vehicle. But Handy incurred more than $30 million of debt in connection with the building and operation of the facility, due to operational challenges and the economic environment at the time of opening. It closed Dec. 31, 2013.
For members, the damage meant that what was once $27 million in member equity in Class A and Class B shares was wiped out, according to Handy management.
Under Littlejohn, the Handy story will continue, albeit under a completely different structure. Handy management intends to explain the changes to current Handy dealers at a series of town hall meetings in the coming weeks.
Loss widens at Orchard Supply Hardware
San Jose, Calif.-based Orchard Supply Hardware posted deeper losses for its fourth quarter and full year.
For the quarter, the company’s net loss was $33.57 million, compared with a net loss of $7.24 million in the same quarter last year. For the full year, the net loss swelled to $118.38 million, compared with $14.45 million in the previous year.
Sales for the 89-store hardware and garden stores that focuses on paint, repair and the backyard were $153.09 million in the fourth quarter, up from $141.58 million a year ago. For the full year, sales declined slightly to $657.3 million, down from $660.5 million.
Comparable-store sales on a 52-week basis were down 0.2%.
Still, CEO Mark Baker pointed to signs of “significant progress.”
“We continue to expect comparable store sales growth of 9% to 11% in the first quarter, reflecting our team’s focused efforts during the important spring selling season,” Baker said. “Looking at the balance of the year, we hope to carry this momentum into the second quarter and deliver solid operating results for fiscal 2013.”
So far in 2013, Orchard has opened new stores in Portland and Tigard, Oregon and one in Yorba Linda, Calif., and completed remodels on three locations, which bring Orchard’s total number of neighborhood format stores to 16. Including these store openings, Orchard continues to expect to open at least four new stores and to remodel at least six existing locations, reaching a total of about 20 stores, or more than 20% of the portfolio in the new format, by the end of the year.
IKEA to open in Merriam, Kan., next year
Home-furnishings giant IKEA announced that it hired contractor for its Kansas City-area store, expected to open in the fall of 2014.
The 359,000-sq.-ft. store will be built in Merriam, Kan. There are currently 38 IKEA stores in the United States.
IKEA has chosen JE Dunn Construction to serve as construction manager for the store, parking structure and site development.
“We are excited that plans continue to be on track to open IKEA Merriam as our Kansas City-area store,” said Mike Ward, IKEA U.S. president. “This store would provide a more conveniently located IKEA shopping experience for current and potential customers from Kansas, Missouri and beyond, and strengthen the IKEA presence already established in the Midwestern US by stores in Illinois, Michigan, Minnesota, Ohio and Texas.”