Impact of the closure of City Link on Employment - Business, Innovation and Skills and Scottish Affairs Contents

2  Could City Link have been saved?

16. KPMG were appointed on 13 October 2014 to examine strategic options for the future of City Link as a going concern.[10] At the same time, a turnaround plan was being developed by City Link management. The turnaround plan involved restructuring City Link as a business to business (B2B) provider.

17. A number of options for consideration were identified by KPMG including selling City Link, acquiring additional companies to add scale to the business, a Company Voluntary Arrangement (CVA) and the management turnaround plan. The ten initial options were narrowed down to two final options—the turnaround plan and selling City Link.

Potential sale

18. KPMG identified 17 parties who could potentially have had an interest in acquiring City Link. David Smith told us that there followed "a very extensive review of potential credible buyers."[11] Negotiations advanced to the point of entering into a period of exclusivity with one potential buyer, but this lapsed on 14 November 2014, and the buyer confirmed their intention not to proceed. While it appears that negotiations with some of the 17 potential buyers continued after this date, the last remaining potential buyer had withdrawn from negotiations by 22 December 2014.[12]

Turnaround plan

19. At the same time as work to find a buyer for City Link was ongoing, the company's senior management were working on a turnaround plan. David Smith told us that an initial request for further funding of £25million as part of a plan for securing the future of City Link was presented to Better Capital in August 2014, and Better Capital asked the management of City Link to "continue to progress" the plan.[13]

20. The Administrators' statement of Proposals notes that, from 14 November 2014 onwards, "management further developed the Turnaround Plan which involved a lower volume, higher margin business model."[14] Further formal updates were provided for Better Capital on 21 and 28 November, with a final presentation and investment request presented on 19 December 2014.[15]

21. David Smith told us that, up until their final rejection of the turnaround plan on 22 December, City Link management believed they had the support of Better Capital for the plan. He said that a letter from Better Capital on 30 September 2014, which stated that it was "currently [Better Capital's] firm intention to provide finance […] sufficient to enable [City Link] to continue as a going concern for the next 12 months" gave the board of City Link a "greater level of comfort."[16]

He went on to tell us that:

We took comfort from the fact that we had presented to them in August and asked for a further £25 million, and they had asked us to continue to progress that plan. […] Better Capital continued to write of their continued support as late as 3 December, when we received a similar comfort letter from them, having presented to them on 28 November. We continued to believe that Better were going to support us[…].[17]

22. Although the evidence from both David Smith and Jon Moulton acknowledged the great difficulties City Link faced in trying to turn its fortunes around and return to profitability, there appears to be a disagreement over whether the closure was inevitable or whether further investment would have secured the future of City Link. Jon Moulton told us that, although it was a matter of regret, he viewed the closure of City Link as inevitable and that Better Capital :

tried every which way to avoid it being an end, because it is in our economic and, believe it or not, our social desires, too, to make sure that the company survives if it possibly can. It is our business. We do turnarounds.[18]

23. In contrast, David Smith told us, when asked if City Link could have been saved, that:

My belief is that, yes, it could, but my belief is also that the return on investment that Better would look for as a private equity house would have been lower than they would have normally anticipated, so I can understand why they made the decision they made."[19]

24. We recognise that there were differences of opinion as to whether or not City Link could be made viable and the desired level of return could be achieved. Thus we do not underestimate the difficulties of the decisions Better Capital were faced with when the final version of the turnaround plan and the investment request were presented to them. As an investment fund they clearly have a responsibility to their investors. However, it is a matter of regret that Better Capital felt that those interests could only be protected at the expense of the future of City Link and continued employment for its workers.

10   Ernst & Young LLP, City Link Limited and City Link (Properties) No. 1 Limited (Both in Administration) (together "the Companies") Administrators' statement of Proposals, 17 February 2015, p 3-4 Back

11   Q 590 Back

12   Q 179 Back

13   Q 642 Back

14   Ernst & Young LLP, City Link Limited and City Link (Properties) No. 1 Limited (Both in Administration) (together "the Companies") Administrators' statement of Proposals, 17 February 2015, p 4 Back

15   As above  Back

16   Written evidence from Mr J Moulton, Better Capital (CCL0003) [not printed] Back

17   Q 642 Back

18   Q 178 Back

19   Q 812 Back

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© Parliamentary copyright 2015
Prepared 23 March 2015