It took less than four weeks for a firm worth more than half a billion pounds to fall apart.
On 8 March, Conviviality – not a household name, but a big firm with more than 4,000 staff – had a stock-market value of more than £550m. Fast-forward less than a month and its finances have fallen apart, its bankers have balked at rescue plans and shares then worth 300p are now worth nothing. It will be remembered as one of the quickest corporate collapses ever seen in the UK.
On Wednesday the firm went into administration; the best parts of the operation were immediately sold to new operators and 2,000 workers suddenly have a new employer. For the other staff, the outlook is far less certain.
Magners cider owner, C&C Group, to buy wholesale arm of Conviviality
Conviviality was a big player in the drinks business. It was the wine and spirits supplier to Wetherspoons’ 900 pubs, to chains like Slug & Lettuce and Yates, and to Hilton’s UK hotels. It ran the bars at major outdoor events like the Isle of Wight festival and the Henley regatta. Conviviality also owned the Wine Rack and Bargain Booze chains and a handful of upmarket wine merchants, including Bibendum and the royal warrant holder Walker & Wodehouse.
It expanded rapidly via a dizzying sequence of acquisitions, which delivered impressive growth and transformed the company from a little-known, downmarket drinks chain into a darling of the stock market.
That strategy, it now seems, is where it all went so badly wrong. Industry observers say that Conviviality’s acquisitions, while delivering stunning revenue growth that looked impressive, ended up exposing underlying weaknesses in its management.
Now, as the hangover kicks in, the recriminations are beginning. Former investors in Conviviality are considering a lawsuit, while the chair of the work and pensions committee, Frank Field MP, has questioned the role of the auditor KPMG, which also ran the rule over the books of the government contractor Carillion before it failed.
Conviviality’s chairman, David Adams, who on Thursday cited the company’s collapse as he resigned from the board of mixer-drinks firm Fever-Tree, can add another name to the list of ill-fated directorships on his CV: Jessops (bust), JJB Sports (bust) and HMV (also bust).
As administrators from PricewaterhouseCoopers (PwC) start to pick through the remains, they are understood to be severely hampered by poor record-keeping – in line with the chaotic picture of Conviviality that has emerged during its decline.
What is Conviviality?
Matthew Clark Distributes wines and spirits to hotels, pubs and restaurants. Customers include 900 Wetherspoons and 200 Wadworth pubs, UK Hilton hotels, All Bar One, O’Neills and Slug & Lettuce. Based in Bristol, with 18 depots across the country
Bargain Booze 370 franchised retail outlets + 38 convenience stores
Bibendum Supplies wine, craft beers, cider and sake to the on-trade
Wine Rack 29 retail outlets
Catalyst Wine supplier
Walker & Wodehouse Wine merchant and royal warrant holder
Peppermint Operates bars at outdoor events such as Henley regatta, Isle of Wight festival and Bestival
Elastic Marketing agency specialising in drinks brands
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The death blow came when investors refused to pump £125m into the company. But that followed three profit warnings in as many weeks, the first of which was blamed on an arithmetical error by a member of the finance team. A week later, Conviviality revealed it had also forgotten that it owed £30m to HM Revenue and Customs.
So convivial was the company, it seems, that it forgot how to do its sums, forgot its taxes were due and forgot how to keep proper records.
On Thursday C&C, the Dublin-based cider company behind Magners, stepped in to buy the distribution division, which supplied 25,000 pubs and restaurants. But a further 2,000 workers in the high street retail business face uncertainty as PwC tries to find a buyer.
A story about Conviviality’s former chief executive Diana Hunter may offer some insight. According to a newspaper interview with Hunter, whose early career included stints at Sainsbury’s and Waitrose, she liked to use her Porsche Cayenne as a “mobile office”, with a printer on the back seat that allowed her to print out takeover agreements and sign them on the go.
The sequence of acquisitions began with the takeover of Punch Taverns’ drinks wholesaler Matthew Clark for £200m in 2015. That was followed by the purchase of outdoor bars firm Peppermint and, in 2016, a £60m deal for Bibendum. At one point the business was valued at £1bn.
The company was sometimes as bold in its marketing as it was in its deal-making, confronting Aldi head-on with an advert boasting of its prices in comparison with those of the German discounter. “Aldi Schmaldi” read the slogan, a line that resulted in an out-of-court settlement.
It all seemed to be paying off. Revenues soared by 85% to £1.65bn in the year to April 2017, while profits more than doubled to £22.5m.
The combination of chutzpah and meteoric growth won plaudits among stock investors, and the share price increased more than threefold between the start of 2015 and October last year. Investors were handed £20m in dividends in 2017, more than double the payout in 2016.
All this triggered hefty rewards for directors, with Hunter’s overall pay package at just under £1m.
But according to a source, Conviviality “massively overpaid” for Bibendum. It is also believed to have paid £1m to JD Wetherspoon for the right to be its exclusive supplier. On tiny margins, this is the sort of arrangement that would take years to pay for itself, if ever.
Mark Brumby, chief executive of the retail analyst Langton Capital, says Conviviality was always running a risk. “If you’re bombing along at 120mph on a straight road, that’s great. But when you hit a bend, you go flying off into the woods.
“[The firm’s] cashflow management certainly wasn’t good enough or they wouldn’t have gone bust. This was a £1bn company a few months ago and now it’s worth nothing.”