PEP, Australia's leading private equity firm with a $4 billion buyout fund, was first linked to Borders in March 2007. Yet it took until June the next year to close the deal. The first throes of the global financial crisis struck in late 2007, before its most dramatic turn in September 2008.
Accounts lodged with the corporate regulator show financing for the Borders transaction included PEP tipping in $105 million, including $62 million in debt.
Annual sales of about $500 million have been falling about 10 per cent a year and a $30 million writedown on inventory led to the company posting a $43 million loss last year. It narrowly avoided breaching lending covenants.
There's no doubting the internet's impact on retail but as James Stewart, a partner at Ferrier Hodgson - coincidentally the firm appointed REDGroup's administrator - said last week, it is only between 2 and 3 per cent of Australian retail.
Stores like Borders have enormous overheads, huge prime positions in retail shopping centres (are you listening Westfield?) and voluminous stock. Compounding the problem for private equity owners is timing.
Many assets the industry bought around the 2006-08 period were overpriced and filled with cheap debt that is having to be refinanced at onerous rates in a soft retail environment. Shareholders are getting nervous with the three- to five-year time frame for private equity investments.