As OPUS never tires of reporting, how is it that a flat-busted-broke company that has insufficient funds to pay its suppliers, fails to deliver to its paying customers and collapses into administration, gets sold for £20m? How does a financial wreck of a company deliver such a ‘successful’ fire sale? Back in the day, I’m sure many of you will recall, such failed companies typically sold for a £1. The £1 being accepted minimum legal consideration in contract law for the sale contract to be binding. The lucky purchaser got to step into the shoes of the debtor vendor and flip-a-coin as to whether they could rescue anything meaningful from the ruins. Some did, some didn’t. There is no mystery to these new ‘end-of-life’ big paydays if you understand the importance of intellectual property in the modern business world. In particular, the value of a brand.
A few days ago, the retail markets served up just such a dish.
Ash to cash
Mike Ashley’s Frasers Group bought the woman’s retailer Missguided out of administration for £20m. By all accounts, there was other interest in the failed retailer from Boohoo Group, but Frasers won out over a proposed Boohoo pre-pack offer. Both Boohoo and Frasers being no strangers to acquiring brands from companies no longer able to trade as going concerns. There was some feasting on the carcass of Debenhams and its allied brands, a while back.
It was reported that Frasers had:
“…acquired certain intellectual property…” from Missguided. To you and me that will be the name, brand, and the peculiarities of its trading platform. Frasers were said to be enthusiastic to acquire Missguided’s “digital-first” approach to selling women’s fashion and attendant expertise.
It’s all about the base
Not “bass” as in the catchy tune, but “base” as in customer base, to be precise. You see, brands have a following much of which will be loyal and transferable. If you listened to reports from disappointed customers of Missguided (who didn’t get the goods they ordered) in its last days before administration, there’s a strong clue to just what is the abstract notion of brand value. One was reported by the BBC as saying:
“Missguided is my little treat.”
The customer in question buying something once a month because of the quality of the clothing and its suitability for “…a curvy woman”.
Bang! That’s the loyal customer base – right there. That regular purchase multiplied x-thousand times affixed to the Group’s sales and marketing platforms=‘Kerching!’ which, in turn,= brand value. You don’t have to be Albert Einstein to understand that mathematical formula.
In the words of Mark Getty (Getty Images):
“…intellectual property is the oil of the 21st century”
Amidst the inevitable redundancies and unfulfilled sales orders, Mike Ashley just sank a £20m exploratory bore hole. Will it gush or will he flip?
It’s worth repeating our concluding comments in the article Brand Width February 2021:
Whether your exit is forced or planned, never forget the brand. Protect it.
OPUS Underwriting Limited
+44 (0) 780 145 9940
Research by Ben Fairclough