Modella Capital, a previously little-known investment firm, has found itself in the spotlight as two major high street retailers, Claire’s and The Original Factory Shop, face collapse. The UK-based firm, set up by a group of restructuring professionals four years ago, has rapidly gained control over businesses totalling around 900 shops and employing 10,000 staff.
Modella’s strategy has been to swiftly restructure struggling retailers, often through insolvency procedures such as company voluntary arrangements (CVAs), in a bid to reduce costs and close underperforming stores. This approach has been applied to its recent acquisitions, including the arts and crafts retailer Hobbycraft and the high street business of WH Smith, now renamed TG Jones.
The expected collapse of Claire’s and The Original Factory Shop, with 2,550 jobs at risk, has highlighted Modella’s reputation for rapid and hard-nosed restructuring. Under Modella’s ownership, Hobbycraft has closed 18 of its 124 stores, while The Original Factory Shop has closed 41 stores and exited its Burnley head office and distribution centre.
Despite Modella’s quick exit from Claire’s, the firm is likely to have “made a lot of money” from the deal, including from stock clearance takings. Modella took out a charge on Claire’s UK assets as security against a loan understood to be worth around £7.5 million, positioning it as a lead secured lender in line to benefit from the administrator’s sale of the retailer’s assets.
However, it is understood that Modella’s returns on investment are not as strong as expected, as the firm has ploughed money into failed turnaround efforts. The company does not expect full repayment of debts that will sit behind payments to employees and HMRC.
Modella is part of the Hay Wain group, controlled by former Touche Ross and RJP accountant and turnaround expert Jamie Constable, who co-founded the investment firm Rcapital in 2004. The group’s portfolio includes the stock clearance advisory firm Retail Realisation, the Blazehill credit fund, and the specialist investment firm Quilam Capital.
Despite the challenges faced by Claire’s and The Original Factory Shop, Modella continues to look for further potential retail deals, aiming to turn around important businesses and preserve jobs. However, industry experts have questioned whether the firm has the necessary expertise in the trading of businesses, rather than just restructuring.
The collapse of Claire’s and The Original Factory Shop is likely to raise concerns about the future of TG Jones, the high street business of WH Smith that Modella acquired last year. While Modella is blocked from restructuring TG Jones until next summer, industry insiders warn that “after that, all bets are off.”
