The Big Interview: Steve Benger, WaverleyTBS

The company folded last October, leaving £64.5m in debt to unsecured creditors, with seven drinks firms owed seven-figure sums each. There were 196 trade creditors in total, and most were drinks companies.

That’s not to mention the obvious knock-on impact on the supply chain for pubs, and fundamental questions about the future of drinks wholesaling in the UK.

Benger, who has a background in turn-around roles across a variety of sectors, recalls being on the telephone to between 15 and 20 major customers, and around eight or nine suppliers, to keep them updated as the company unravelled.

“They weren’t easy discussions, but most of them were grateful for the upfront communication,” he says.

The feeling of surprise was universal, though. Just five weeks earlier the newly-appointed chief executive told M&C Report about his bullish plans for growth, which included potential acquisitions and even the possibility of direct sales to customers.

Benger says the firm, which was divested from previous owner Heineken in 2010, was in a “good position” towards the end of 2012 after “18 months’ hard work” under new owner Manfield Partners.

“We’d arrested the sales decline — we had a platform in place to actually start growing sales. We’d increased market share and started to see some major customers coming back,” Benger says.

Profitability had also improved after more than £15m was spent on the restructuring that saw the company exit sites, invest in a new IT system, and reduce staff numbers.

“After that investment, our business forecast was that, as we exited 2012 and were just coming into 2013, not only with the profitability enhanced, we would have been cash-positive — and in the thin-margin wholesale sector, cash is king.”

At this time the firm knew it needed to arrange fresh refinancing to “bring in some extra headroom” and also secure funds for growth.

“We starting having reviews as to who might be targets for us to acquire in order to start consolidation in that sector,” says Benger. “We talked about where the funding might come from and some tentative discussions had been held. The plan was to have that in place as we exited 2012.”
Answers​

So, we turn to the £64.5m question: what went wrong? Benger, who joined Waverley in March 2011 as programme director responsible for a wide-ranging change management programme, identifies three main factors.

Firstly, soon after he became chief executive in mid-2012, some major creditors pulled their credit. “That stripped £6m out of us quite quickly,” he says.

Benger adds: “In the period from May to September the weather was awful, trade went down, and the business [across the sector] was down between 8% and 9%.”   

And the third factor was margins, which were down more than 10% across all categories and regions.

The reasons were compounded by Waverley’s use of confidential invoice discounting as its financial model. “Basically, that means you sell your debt to a bank, which gives you the money today and then you pay it when you recover.

“As long as you are able to pay [the money] back based on the money you have got coming into the business, you just keep ahead of yourself and you have headroom.

“We had to take stock and look forward. That meant we had to forecast down for the end of 2012 and also into 2013. You suddenly have to pay more back than you are able to generate. That meant that 2013 didn’t look cash-positive, so we had to review the strategy.”

The conclusion was to seek a trade sale. “We got quickly into trying to sell the business in early September, but time ran out by the end of that month,” explains Benger.

“The bank felt the risk of trading longer would make all the creditors’ positions worse, so it wouldn’t allow us to draw down any more money. As directors, we then had no choice but to move into administration.

“It all unwound very quickly and we had less than four weeks to try to sell the business.”

National rival Matthew Clark was widely reported to be one company taking a serious interest in Waverley. Benger said: “A lot of the main players looked. Pre-administration, as a board, we talked to in excess of 10 potential admirers, and post-administration, Deloitte [the administrator] probably had dialogue with a further eight; there were two or three that had serious looks.

“Under the right circumstances probably all would have had an interest in us. But time was not there for us to complete.”

The uncertainty around Waverley’s future had also prompted suppliers to move out. “Within that week I think between 30% and 40% of the business moved elsewhere,” Benger reveals, confirming rumours that some drinks companies did retrieve stock from the depots.

“There was some significant progress made with a few other potential acquirers, but by the end of that week there were no interested parties. It meant the administrator wound the business up on 7/8 October.”

A few private-equity firms also looked, but Benger says the model “wouldn’t work for a private-equity investor” because they won’t make a return on their investment in two or three years.

All this is of little comfort to Waverley’s unsecured creditors and Benger believes that most won’t see much of the money. “I do know the secured creditors were covered, I think, pre-Christmas. There is probably going to be some disbursement to unsecured creditors, but I think it’s going to be relatively small if I’m honest.”

However, Benger makes the point that there’s “some degree of set-off” among some brewer/pub operator companies that may also have owed Waverley money for products.

Positives​

More positively, Benger believes around half of the circa 800 people who lost their jobs have since found employment elsewhere, either with other wholesalers, brand owners or retailers, or, in the case of distribution staff, at temping agencies.

He says: “My view — and the board shared this view — was that, at some point when the market consolidates, there’s probably 400 jobs that need to be lost [in drinks wholesaling].

“We didn’t plan for it to be as dramatic as 400 at Waverley in one go; it probably would have been spread around a number of players, a more controlled consolidation.”

For Benger, only one thing could have averted the collapse. “The obvious answer in hindsight was to have affected a trade sale earlier. We made that decision at the end of 2011 that this is our strategy, which was the point to try and sell it.”

But he said the business was risk-assessed “really robustly” and the company could not predict the “perfect storm” on the way.

Looking ahead, Benger forecasts more consolidation among drinks wholesalers. “There will be some fall-out this year. I think there will be a number of regional players that will drop out. Whether we get some consolidation with some regionals getting together, I’m not sure. But my view is not all of the regional players will survive.

“And at a national level, and including wine distribution, there has to be consolidation. In the national space at this moment in time, consolidation is required to survive.”

After his recent experience, you’d think Benger would have had enough of the industry. Not so, and he reveals that he’s planning a new venture around brand development for drinks categories such as craft beer and spirits.

Benger adds: “There’s something about the drinks sector that when you get into, people like. I want to keep an active involvement.”

Let’s hope his future involvement in the sector is less fraught than his last one.