BrightHouse weathers market storm
Tuesday, 8th January 2008 by Giles David*
For many UK financial services and retail companies the impact of the US mortgage crisis has been not so much a ‘ripple effect’ as a heavy ‘plunk-plop’.
This has led to ebbing confidence and debt overflow on the relatively lush European banks of the Atlantic pond.
At the time of writing, UK High Street sales were reported to have fallen 0.2 per cent in November on a like-for-like basis, stripping out the effect of new stores, compared with November 2003. Before Christmas, commentators predicted another gloomy festive season. The more upbeat – or blinkered – suggested that shoppers are choosing to stay at home and, fingers-crossed, shop on the internet instead.
Regardless of how the High Street performed over Christmas, this point in cycle again highlights to FDs the importance of ensuring medium to long-term debt, bank facilities and covenants are reviewed and are watertight ahead of storm clouds breaking.
In BrightHouse's case, re-financing in March was a growth decision rather than a reaction to ride out the more marked effect of summer’s turmoil on our lenders and suppliers. However, as part of the £9.3 billion UK alternative credit market, our business proposition and customer demographic means that the credit crunch actually represents an increased market opportunity, rather than a problem to be countered.
From a financial services point of view, with an increasing number of people being denied access to mainstream credit, there is a larger pool of market opportunity which, if addressed properly and responsibly, will create an opening for financial services and retail businesses such as ours to thrive.
In that respect we are expected to be resilient from any downturn in the prevailing economic cycle. Indeed, the current consumer confidence crisis is likely to send more people in our direction.
BrightHouse was acquired by private equity firm Vision Capital in July of this year. With the support of our new owners, we continue to build a financially robust business with high-quality relationships with all of our stakeholders, especially our customers.
Private equity ownership engenders a measured urgency. It brings a high level of commercial acumen, market awareness, and consistent focus on performance. A continuous two-way dialogue with our owners ensures that critical decisions can be taken without delay. Trust between the owners and the FD is critical. Trust refers not only to professionalism and competency but, more importantly, to shared values and personal integrity.
We have found that the quality and nature of our new owner’s involvement has served as a strong spur to the business. While public companies announce results twice a year and are under great scrutiny at that time, under private equity, the demand for transparency is even greater and the company is rigorously reviewed on a weekly basis!
Consequently, the pressure of weekly attention from owners has helped to produce better results. Another of the advantages of private equity is their drive to nurture and accelerate growth: all the management have shares and are all able to benefit from the growth and success of the company. This is extremely motivational; thus, the financial alignment between owners and managers is very powerful.
The credit crunch will make it an interesting, if chaotic and sometimes uncertain, period for financial services and retail companies across the UK. I hope that with the right planning, leadership and support, all FDs drifting in choppy waters are simply waving to the shores, rather than drowning and shouting for help.
*Giles David is FD of Brighthouse
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