Game Group's UK shops rescued by OpCapita deal

The British arm of Game Group, the troubled British video game retailer, has been saved by turn-around investment firm OpCapita.

Game, the computer games retailer, was placed into administration last Monday, after Game was unable to pay a £21m rent bill. 

A deal, which will safeguard the future of the bulk of its remaining 333-shops, is likely to be announced as early as Sunday morning.

Final negotiations were understood to be being completed on Saturday night. It is not known how many of Game’s remaining 2,814 employees will keep their jobs, however.

It is believed that a management team is in position to run the UK business. It is not thought that a deal to rescue the international parts of Game has yet been reached, although potential bidders include Hilco and GameStop, the American video game specialist.

Although the exact price OpCapita is to pay for control of Game’s UK assets is not known, it is thought likely it will have bought the assets out of administration for a nominal amount, believed to be £1.

The real cost, however, will be assuming control of the company’s £85m debt pile.

As part of the deal, it is thought possible that the company’s six lenders, led by the Royal Bank of Scotland and Barclays, will have agreed to roll forward their support at the same time as taking a slight 'hair-cut’ - or reduction - on the amount of debt owed.
The company was placed into administration last Monday, after Game was unable to pay a £21m rent bill. Administrator PwC immediately closed 277 shops, with the loss of 2,000 jobs.
At the time, Mike Jervis, the joint administrator, said despite the “serious cashflow and profit issues” he was hopeful of “that a going-concern sale of the business is achievable.”
Ian Shepherd, the former chief executive of Game, admitted that he was “angry” the management had not been able to turnaround the business’s performance.
“I have fought, and all of the management team here have fought with every ounce of energy to avoid arriving at this point,” he said in an email to staff.
RBS and the other banks had also been considering an offer for the company, through a debt-for-equity swap. But OpCapita, which delivered a rescue offer to Game’s board the week before it was placed into administration, is thought to have benefited from its more advanced plans.
OpCapita, where former Somerfield chairman John von Spreckelsen is operating partner, bought Comet for £2 last year, and specialises in investing in and turning around retailers which have fallen on hard times.
The downfall of Game marked the latest collapse in the UK’s troubled retail sector. At the start of the year, as first reported by The Sunday Telegraph, Peacocks collapsed into administration, but was later part rescued by the Edinburgh Woollen Mill. Other recent retail casualties include Blacks Leisure and Barratts.

Game Group £20m lift despite fears over Comet links

The chief executive of Game Group, the video games retailer bought by OpCapita earlier this year, has said it is performing well and defended its backers despite having to operate without credit insurance and with a similar investment structure to Comet.

Martyn Gibbs, who was promoted by OpCapita to become chief executive of Game, told The Sunday Telegraph that the retailer is in “good shape”. 

By Graham Ruddick and Helia Ebrahimi

8:06AM GMT 11 Nov 2012

Game was bought out of administration in April by OpCapita and its American founder, Henry Jackson. However, the private investment firm is under increased scrutiny after it emerged OpCapita could make a profit from Comet despite the retailer collapsing less than a year after it was bought for £2.

Martyn Gibbs, who was appointed by OpCapita to become chief executive of Game, told The Sunday Telegraph that the retailer is in “good shape”. He said Game is forecast to make £20m in earnings before interest, taxes, depreciation and amortisation in the year to July 2013. Game has around 330 UK stores and employs more than 3,000 people.

“I have all the cash I need to trade through peak [period]. There has been nothing that I tabled that I didn’t get investment for. I can’t ask for more,” he said, adding that the investment amounted to “significant millions” and that any interest payments to OpCapita are “not at all” impeding the business.

Mr Gibbs said Game has maintained its market share at around 35pc, despite operating from half the number of stores, and has cut £17m of costs and opened new shops in Reading, Manchester and Sheffield.

The business has been boosted in the past few weeks by the launch of key titles, such as Fifa 13, Halo 4, and Assassin’s Creed 3.

Mr Gibbs said that he is “very close” to the suppliers of Game and that they have maintained their support.
But he accepted that Game would prefer to operate with credit insurance. OpCapita has said that the lack of credit insurance was one of the main reasons Comet collapsed. “I would rather we had it, but have managed without it,” Mr Gibbs said. “We will hopefully achieve it sometime in the future. But, we have never factored it in.”
OpCapita has structured its investment as with sister company Comet, so that Game is charged interest on its funding and OpCapita will be the leading secured creditor if it collapsed.
Leading credit insurers have refused to support Game since OpCapita bought it. Two of the largest, Euler Hermes and Atradius, are angry that OpCapita did not pay off £40m debt to suppliers when it bought Game, which it had no legal obligation to do, so insurers had to make huge payouts.
According to Companies House documents, Game’s property interests, equipment, intellectual property and insurance policies are held by a company registered as Baker Dozen Ltd.
One of the directors of Baker Dozen is Jim Shinehouse, the US restructuring expert who is also on the board of Comet’s parent company. In a similar structure to Comet, Game has £106m of loans held in the form of “payment in kind” (PIK) notes. Interest on PIK notes is normally at least 9pc, so Game could be making annual interest payments of £10m.