Arora said he was “concerned” that the "Newco" — the acquisition vehicle set up by M2 to acquire Wilko — would face challenges both in acquiring new leases and importing general merchandise stock, in an email seen by Private Equity News.

“It is unlikely that your Newco will actually get the good stores as there is ample interest in them from other discounters such as B&M and Home Bargains who have undoubted Blue Chip covenants,” Arora argued.

He added: “Suppliers with historic bad debts or outstanding monies will want paying in full if the new order comes from a company trading as 'Wilko'. Put simply, a Chinese garden furniture factory owner will not have any time for explanations that ‘this is a new company’”.

If the email was an attempt to dissuade the M2 team from their takeover efforts, it failed.

Project Falcon

M2, an Anglo-Canadian PE and advisory firm, had made an offer late last week of just under £90m for all the assets of Wilko that have been put up for sale.

According to a presentation document labelled "Project Falcon", the bid included several guarantees: all 12,500 employees of the company would retain their employment for two years; 20% of Newco’s equity would be owned by the employees of the company; and all employees of the company would receive a 3.5% pay raise the first week of January 2024.

The M2 presentation on the Wilko acquisition also said that the private equity firm “sees the opportunity to rework the front- and back-end of the business and boost in-store sales productivity through better range structuring, a more defined price architecture and clearer presentation, leading to a material improvement in sales”.

The firm added: “This is an iconic brand in the United Kingdom with significant value that is completely ignored within this sales process.”

The presentation document was signed off with a motto: Work never sleeps.

The morning after...

By this morning, however, the deal had fallen apart, causing fresh uncertainty for the future of Wilko, a family-owned business with roughly 400 stores and more than 12,000 employees.

PwC, who were called in as administrators earlier this month after the household and garden products retailer failed to secure a rescue deal, told M2 that they had not received “evidence of proof of funding from you with respect to the offer you submitted to us on Friday 25 August 2023”.

PwC noted: “Unfortunately, as set out in our email yesterday evening, we are unable to grant any further extensions to the timetable and this means we are unable to progress your interest and will continue to progress our discussions with other interested parties.”

High street deals sour

It is not the first time that a private equity attempt to buy a high street stalwart has turned sour in the last year.

Last summer, the blockbuster sale of UK chemist chain Boots was abandoned amid uncertainty in the debt markets.

US buyout shop Apollo Global Management had teamed up with Indian billionaire Mukesh Ambani’s Reliance Industries to make a bid of more than £5bn for the company, but its owner, Walgreens Boots Alliance, decided to keep its Boots and No7 Beauty Company businesses under its existing ownership.

The collapse of the deal comes amid a wider cooling of PE activity in the UK market this year.

UK transactions involving mid-market private equity investors slowed down in the first half of 2023 amid market volatility and tough trading conditions, according to recent analysis from KPMG UK.

Some 327 deals worth £32bn were completed in H1 2023, reflecting a drop in volume of 12% when compared with the same period in 2022.

Arora declined to comment. M2 and PwC have not responded to a request for comment.

This article was published by Private Equity News, part of Dow Jones

To contact the author of this story with feedback or news, email Sebastian McCarthy