Made.com enters into administration​

By Jake Rickman
Image credit - T. Schneider / Shutterstock.com

What do you need to know this week?

On Monday, the High Court placed Made.com, the UK online furniture retailer, into administration after negotiations with potential buyers to rescue the company collapsed.

Made.com experienced a rapid rise and an equally rapid fall over the past two years. Its shares were listed on the London Stock Exchange in 2021 following rapid sales growth in response to consumer demand during the lockdowns.

However, the valuation following the IPO’s close was 25% less than what was forecast at £1bn. And less than a year after its listing, the firm began issuing profit warnings in response to global supply chain disruptions.

Made.com was particularly vulnerable to such disruptions because it operated a “just in time” inventory strategy. This means that it is highly dependent on the unimpeded supply of goods in order to facilitate the rapid delivery of customer orders. As delays mounted, it could not process customer orders, which contributed to a deterioration in its cash flow. Comparing H1 2022 with H1 2021, the firm’s earnings before taxes and interest fell from £11m to negative £31.5m, meaning it was burning its cash reserves just to stay afloat.

The directors concluded that this was not sustainable, and by July 2022, they announced they were looking for a buyer. Though this did not ultimately materialise.

Why is this important for your interviews?

Made.com’s rise and fall serves as an illustrative case study in how a company’s financial distress often plays out.

Made.com’s decline is particularly apropos given the dim economic climate, which remains especially pronounced in the UK. Other UK-based businesses exposed to similar market challenges are almost certain to follow suit in the coming months. In such cases, distressed investors may swoop in to buy the firm’s (or their valuable assets) at a steep discount. But absent any buyers, distressed companies will enter into formal insolvency proceedings including administration. How is this topic relevant to law firms?

Big Four professional service firm PwC has been appointed as Made.com’s insolvency administrator to take control of the company’s management. Under UK insolvency law, the insolvency practitioner’s first goal will be to rescue Made.com “as a going concern”. In practice, this means trying to find a buyer that will acquire the company’s share capital or valuable portions of its business so that it can continue to trade.

If PwC does not think there is a reasonable prospect of success, it will seek to sell off the business’ assets piecemeal, the proceeds of which will be used to pay back the firm’s creditors, which include customers with currently outstanding orders. However, as is often the case for companies in administration, it is unlikely there will be enough value left to repay all creditors in full.

Assisting PwC’s administration of the company are law firms Herbert Smith Freehills and Davis, Polk & Wardell .