The Bank Holiday weekend will almost certainly have seen a spike in sightings of the MAMIL – Middle Aged Man in Lycra. Often heading a queue of overtaking traffic at weekends, these cyclists clad in spray-on ‘technical’ apparel breathed new life into 21st century bike retailing, sometimes paying the price of a perfectly good car for two wheels on a lightweight frame.
Nonetheless, this phenomenon has suffered a series of punctures in recent months. Although the Covid pandemic prompted purchases of new bicycles as a means of keeping fit during lockdown or avoiding public transport, the boom in sales has subsided. Bikes last a good while; even the most obsessed MAMIL is unlikely to change his mount regularly. The Bicycle Association of Great Britain says cycle sales are at a 39-year low.
Mercian Cycles, the Derby-based maker of top-end bikes with a cult following in the UK and US, has ceased trading and is entering voluntary liquidation. Founded in 1946, the company sponsored many champions and was favoured by celebrities including Ewan McGregor and Sir Paul Smith. This disappointing news follows major problems at cycle retailer Wiggle, many operations of which have been snapped up at knockdown price by Mike Ashley’s Frasers Group. Wiggle, whose previous owners include two UK mid-market private equity firms, saw sales fall by 30% last year and made a loss of more than £100m. The business had survived the lockdowns of 2020 and 2021 but failed to maintain momentum in the post-pandemic period.
The government’s once popular Cycle to Work scheme may not have helped. Earlier this year, the Association of Cycle Traders (ACT) and major bike retailers lobbied for “urgent systematic change” to the scheme. One of the scheme’s providers, Cyclescheme, is said to have decided to prevent retailers from charging for extras on bikes bought through the scheme – effectively preventing them from making money from repairs and accessories that represent critical revenue when sales slow down.
As Hemingway famously said, bankruptcy (or at least insolvency) happens gradually, then suddenly. Mercian has decided to stop pedalling uphill while it still controls the decision. Accelerations in the speed of decline and – in Wiggle’s case, with a US parent, the upstream distance of a funding chain – often make it difficult for management teams to plan a ‘safety lane’ for their businesses in the event of an unforeseen swerve off the road. In the retail sector in particular, turnaround funds, sometimes through rapid pre-pack administrations, are adept at alighting on companies with strong brands and good market positions. They might hope to turn a profit on their investment by refinancing, renegotiating debt and applying operational know-how, possibly installing a CEO they know well.
In any event, management teams often form the core of an eventually successfully buyout from an ultimate owner, with or without a turnaround fund. Those with sufficient visibility over a sales pipeline, the company’s debt position and its structure should consider, at least at an exploratory stage, long term scenario planning with their own independent restructuring advisers.
It’s never too early for managers to scope the potential for an alternative future if unhelpful market dynamics mean that a CVL or more drastic elements of the insolvency toolkit cannot be ruled out.
Written by Runita Kholia, Senior Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.