Articles
Scooping up the essentials
March 2024
We have previously touched on high street brands where the IP has been acquired, but not necessarily the stores and revisit with some of the business movements ongoing recently.
According to recent data from Begbies Traynor[1] almost 4,500 UK retailers are now in ‘critical financial distress’, supporting the view that the cost of living crisis is having a significant impact on a number of businesses, including the retail industry. On the back of global pandemics and international conflicts, consumers have less disposable income, there is rising inflation and operating costs. There has been a significant number of businesses being sold, reorganised or in administration. We look at some of the examples below:
The Body Shop: the most recent casualty, the cosmetics company founded in 1976 announced it was in administration in February 2024. There are rumours that Next is considering acquiring some parts of the business. Next has acquired a number of brands in recent years, including FatFace, Cath Kidston, Jo Jo Maman Bébé and Joules. One sticking point is that the Body Shop’s owner, private equity firm Aurelius (who only took over in November 2023) is not including its brand and IP assets as part of the administration. Mere weeks before the administration announcement, Aurelius sold an agreement to sell its business to “an international family office”.
Lloyds Pharmacy: the second largest pharmacy chain in the UK entered liquidation in January 2024, after a year of divesting their assets and selling off all their stores. The company changed its name to Diamond DCO Two a few months before the liquidation.
Evri (previously Hermes): owners Advent International are exploring options for sale. The company rebranded from Hermes in March 2022, but saw profits drop after the pandemic.
Yodel: also amongst the parcel delivery and logistic firms, Yodel has been spared administration following a takeover agreement with a consortium, including Solano Partners and logistics platform Shift. According to the press release, the newly formed group will form a ‘super scale’ logistics platform[2].
Tesco: recently sold their banking arm to Barclays in a £700m deal, which includes an initial 10 year partnership, under which Barclays will retain the Tesco-branded banking services. It is not the first supermarket banking venture to be shelved – Sainsbury’s also announced a phased withdrawal from its banking services, and Tesco previously sold their mortgage portfolio to Lloyds in 2019.
Currys: the British electronics specialist owned by Dixons Carphone group has potential takeover bids from US investment firm Elliott and Chinese ecommerce retailer JD.com. A specialist electricals chain with physical stores, it is an attractive prospect, but the retailer has seen downturn in profits recently.
Administration / liquidation and IP
Intellectual Property assets can have significant value, ranging from trade marks, brand, reputation, goodwill, patents, know-how, customer lists, databases and domain names, to name a few. A full audit of the company’s IP can be helpful, to identify all relevant assets so that the value can be fully appreciated.
It can also be useful to see what, if any, brand is being acquired. It may well be that the assets to be purchased are only (for example) the manufacturing and logistics components to boost an existing business, but if the intention is to continue trading and developing an established name or brand, you want to ensure that you are purchasing those assets and paying the right (or at least reasonable) price.
Elements to consider in any deal would include:
- The Price is Right: As noted above, the valuation of IP is an important consideration. There are expert IP valuers who can look to benchmark, but this does require the appropriate due diligence, and consideration of various approaches (i.e cost, market, income etc).
- Due Diligence: there are a number of questions to consider – where IP rights are registered, what is registered, what is unregistered. Which of those registrations can be challenged or vulnerable, which are subject to litigation or other contentious proceedings, and what would the ongoing costs be. Is the ownership correct and with the entity forming part of the deal.
- All in the paperwork: as part of any sale and purchase or asset purchase agreement, there should be a linked IP assignment to transfer the legal title.
- Recordal Projects: the transfer of the legal title then needs to be recorded in each territory where IP is registered. There can be a number of costs included in such a recordal project, which should not be underestimated or left out of budget estimates. Working with a legal team can help to create a cost effective strategy that does not compromise the value or validity of the IP assets.
- Licences & Agreements: it is likely that any existing granted licences will need to be honoured, and the terms of the licence, their rights and options regarding termination need to be reviewed. Other agreements will need to be checked, for example, whether any assignment needs to be notified to the other party, or restrictions on use, geography, or future expansion plans.
- The Whole World: if ownership is to be split into territories, regions or indeed parts parcelled off, there can be issues with imports/exports, especially parallel imports.
- Bona Vacantia: translating as ‘ownerless goods’, and a quirk of the UK’s constitutional system, property, cash and other assets can pass to the Crown when a company is dissolved without its assets being dealt with first. These can then be sold by the BVD (Bona Vacantia Division) at an open market valuation.
- Social Media: a relatively new consideration, but accounts and tags are valuable, and need to be transferred correctly.
- Security Interests: IP such as trade marks and patents can be used as security for loans by way of a charge or other mortgage. Checks should be conducted to see whether there are any parties who may have charges against rights. Often lenders will record security interests, but have less motivation to record releases, and rights can have multiple interests recorded, and it is difficult to obtain older release documents.
Other Recent Transfers
Wilko: following administration in August 2023, the brand and IP was bought by retailer The Range, The store premises were not included in the deal, which are being considered/purchased by a number of different companies, including Poundland, B&M Retail, Lidl and Aldi.
Hunter Boots: the intellectual property was acquired by Authentic Brands Group in 2023. The American brand management company owns various clothing, athletic and entertainment brands. Other recent purchases include Billabong, Roxy, DC Shoes, Rockport and Ted baker.
Paperchase: the stationery retailer’s brand and IP was acquired by Tesco in 2023 with the brand launched instore later in the year.
Missguided: the retailer was brough by Sports Direct owner Frasers, who also own other retailers include Jack Wills, GAME, Lillywhites, and Evans Cycles.
Farfetch: the business was sold pre-administration to South Korean ecommerce group Coupang, in a deal which included ‘its business and assets’. New reports in February 2024 have indicated that the company is now hit by a winding up order after investors have formed a group to challenge the deal.
Victoria Plum[3]: the bathroom sellers business was acquired in October 2023 by AHK Designs through a pre-pack administration.
[1] The summary of Begbies Traynor’s “Red Flag Alert” offering can be found here.
[2] https://www.yodel.co.uk/news/2024/february-2024/we-re-pleased-to-announce-that-we-have-been-acquired-by-ydlgp-limited
[3] Not to be confused with the company Victorian Plumbing, which is another bathroom retailer, based in Skelmersdale.