The Reject Shop

Next Capital's partners managed an expansion capital deal through to Initial Public Offering for Victorian-headquartered discount variety business The Reject Shop. The deal emphasised the partners' patience in bringing investments to fruition and their ability to appoint the right managers to turn around an ailing business.

A pre-deal assessment identified The Reject Shop's high growth prospects, strong market share and good revenue and profit performance. However, difficult trading conditions and evidence that senior managment were ill suited to manage the increaseed scale and complexity of the business resulted in below expected trading and eventual losses.

The partners then fixed internal controls, financial and management reporting, implemented a new property strategy and recruited a new CEO, new head of merchandising and a new store operations team. These appointments yielded improvements in merchandising, stock control and store rollout.

After ruling out a trade sale due to the difficult trading conditions experienced by The Reject Shop's competitors, the partners opted for an IPO that took place in March 2004. The company's share price remains well above the IPO price and it is widely viewed as the best operator in its market.

The transaction yielded an exit price of $40.6 million, 3.4 times the entry price of $11.8 million and an internal rate of return of 17.5% over a ten year investment period.