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buyer had withdrawn from negotiations by 22 December 2014.[12]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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