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Art Van is out of money and is liquidating and closing all stores

Discussion pertaining to Detroit, Ann Arbor, Port Huron, and SW Ontario
Deleted User 12047

Re: Art Van is out of money and is liquidating and closing all stores

Post by Deleted User 12047 » Fri Mar 06, 2020 10:09 am

Did anyone notice the presence of Thomas Lee Partners, the same people who fucked up iHeart?



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TC Talks
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Re: Art Van is out of money and is liquidating and closing all stores

Post by TC Talks » Fri Mar 06, 2020 10:13 am

MW, I'm surprised that you see this as anything other than a planned event. The Private Equity firm buys it, loads it up with debt, strips off assets, then bleeds it to death.

I could point to dozens of companies that ended this way. As part of this deal, Levin (a Pittsburgh chain) was purchased back by the original owners. With the real estate gone, there really is no option for the Van Eslander family to do that here.


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Lester The Nightfly
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Re: Art Van is out of money and is liquidating and closing all stores

Post by Lester The Nightfly » Fri Mar 06, 2020 11:35 am

TC Talks wrote:
Fri Mar 06, 2020 10:13 am
MW, I'm surprised that you see this as anything other than a planned event. The Private Equity firm buys it, loads it up with debt, strips off assets, then bleeds it to death.

I could point to dozens of companies that ended this way. As part of this deal, Levin (a Pittsburgh chain) was purchased back by the original owners. With the real estate gone, there really is no option for the Van Eslander family to do that here.
You are 100% correct. It's what PE firm do, it's their standard operating procedure and sole purpose of existence. Happens everyday of the week and it doesn't matter what the product is. Furniture, potato chips, widgets... make no difference in the calculation. It's how Mitt Romney made his fortune, Bain Capital. When a company gets snatched up by a PE firm, it's roughly equivalent to being bit by a zombie, there's only one outcome.



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MWmetalhead
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Re: Art Van is out of money and is liquidating and closing all stores

Post by MWmetalhead » Fri Mar 06, 2020 11:50 am

I disagree with much of what you both wrote. Ironically, your guys' rhetoric sounds a lot like Tucker Carlson's thoughts on private equity groups. :razz

This is a good discussion!

I'm busy at the office right now. I'll post a detailed response this evening.



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TC Talks
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Re: Art Van is out of money and is liquidating and closing all stores

Post by TC Talks » Fri Mar 06, 2020 12:05 pm

MWmetalhead wrote:
Fri Mar 06, 2020 11:50 am
I'm busy at the office right now. I'll post a detailed response this evening.
I look forward to it, Please keep in mind what actions took place before and after the sale to The private-equity Firm. Everything I read suggests they went into a mass expansion taking on loads of debt the minute the chain was sold.


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Lickalime
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Re: Art Van is out of money and is liquidating and closing all stores

Post by Lickalime » Fri Mar 06, 2020 2:33 pm

All of the furniture in my house (outside one bed frame out of four) is from Costco. They're prices are great and so is their delivery. You can't beat their return policy either. As long as Costco is in business, I will buy my furniture there.



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Re: Art Van is out of money and is liquidating and closing all stores

Post by km1125 » Fri Mar 06, 2020 4:49 pm

MWmetalhead wrote:
Fri Mar 06, 2020 9:57 am
....
Bob's only has 3 Metro Detroit stores so far. Their entrance into the market didn't help matters, but I doubt they command much market share yet.
...
Looks like 4 stores now, but looking at YELP their reviews don't look that great.



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MWmetalhead
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Re: Art Van is out of money and is liquidating and closing all stores

Post by MWmetalhead » Fri Mar 06, 2020 6:27 pm

Please keep in mind what actions took place before and after the sale to The private-equity Firm. Everything I read suggests they went into a mass expansion taking on loads of debt the minute the chain was sold.
First of all, the "mass expansion" never occurred. Yes, that was the supposed plan. It didn't fully materialize. Thomas H. Lee bought two regional chains out east and folded them under the same corporate umbrella. I don't believe those chains' stores were even rebranded to Art Van.

Interestingly, one of those two chains - Levin Furniture - is going to be repurchased by its original owner (subject to BK court approval, of course).

In terms of organic expansion, Art Van opened some franchised stores in northern lower, one or two towns in southern lower, and the U.P. They also opened a few stores in the Chicago area. Not exactly earth shaking stuff.

Lee's issue isn't the fact a bunch of changes were made...far from it! The shopping experience, marketing, etc. was practically left untouched. If anything, that strategy was doubled-down upon. My guess too many old school thinkers still held seats on the Board of Directors. Those of you who think Art Van Furniture was on some sort of great trajectory that was suddenly ruined when Lee purchased it are out of touch with reality. All one needed to do was look at the empty parking lots that were common place at their stores. These aren't 12,000 square foot neighborhood furniture stores we're talking about, either. We're talking massive showrooms that in some cases exceed 50,000 square feet, loaded with expensive inventory, and that often occupy "Grade A" retail real estate where taxes and rent are expensive.

As I noted earlier, everything new that Art Van tried to launch BEFORE Lee acquired the company was a FLOP!!! The carpeting business, Paul's TV, Pure Sleep, the list goes on and on.

Now, let's get to the general topic of Private Equity....

Private equity firms own FAR MORE companies and businesses than most of you realize. If there is a regional or national manufacturer, retailer, e-commerce company or service company that is not "family owned" or publicly traded, guess what? A private equity firm most likely owns it!!!

Only failures generally make the news. That's why such a stigma is associated with private equity.

Safelite Glass? Very successful.
Ray-o-Vac batteries? Ditto.
Dunkin Donuts? Yup. Dunkin has seen incredible growth over the past decade.
First Alert (smoke detectors). Yup.
Aramark.
Fogo de Chao.

Those are just some of the examples of companies where THLP currently or previously held a significant stake.

Depending on the situation, private equity can be a market maker or market consolidator. They can bring supply chain and market access expertise to fledgling companies. And, yes, in some cases they purchase companies in need of capital based on an investment thesis that may involve cost reductions, management changes, new product roll-outs, geographic downsizing or expansion, or some combination of the above.

Just as most people don't pay all cash for a new house, private equity firms seldom pay all cash for a business acquisition. That said, I've personally seen some deals where some private equity firms contribute as much as 60% of capital for an acquisition out of pocket. Are some acquisitions highly leveraged (i.e. funded with 80% or more of debt) ? YES. Bear in mind that debt - or most of that debt - often comes from a syndicate of hedge funds or commercial banks. Those parties are responsible for underwriting their own investment in the transaction.

When the money comes from a commercial bank, it almost always is secured by 1st liens against all assets of the business and subject to financial maintenance covenants.

When an investment thesis fails to work, especially two years in, chances are low that the private equity firm has recovered its initial investment. Credit Agreements generally have restrictions regarding discretionary dividends. Usually leverage ratios need to be below a certain level and Fixed Charge Coverage needs to be above a certain level for such payments to be allowed. Remember that debt I mentioned a little ways back? Those creditors are ahead of THLP in line with regard to BK estate proceeds.

Well, "what about the sale & leaseback of all the real estate" ? Chances are very low THLP pocketed those proceeds. The creditors would not have allowed that to occur if they are sane. Those proceeds were likely used to sustain working capital (i.e. financing of receivables and inventory and payments to vendors). It was likely a desperation move to "bide time" for a business that was burning through cash and/or needed to fund a debt prepayment to avoid a financial covenant default.

Are there vulture capital firms out there? YOU BET! But this isn't one of those situations. This is a case where THLP and its creditors did a lousy job of understanding the business in which they were investing and the market dynamics in play (look at all the Costco testimonials in this thread alone). Remember, THLP paid $550 million for Art Van. This isn't a pennies-on-the-dollar situation.

Coincidentally, vulture capitalists will likely emerge in Bankruptcy court. I'm sure parties will be interested in acquiring much of Art Van's inventory, its collections accounts, and perhaps the "Art Van" name itself.



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Re: Art Van is out of money and is liquidating and closing all stores

Post by 696lover » Fri Mar 06, 2020 7:08 pm

Art Van was purchased by an Equity firm named Lee Partners in 2017. In these transactions it is common to use the corporation itself as collateral on the purchase price.

Obviously Lee saw the real property as the best asset in the purchase. They split it off into a REIT, then tightened the screws on the cash flow to get the loans paid down enough to release the real property.

Now they have an operating entity with warehouses full of stuff, and real property leases on their own stores with ending dates on those leases. Collapse the operating entity, liquidate it, let the bankruptcy court decide if it is going to auction off the leases for the term remaining.

Now Lee Partners owns a whole lot of buildings and underlying ground all over the midwest, many of which are in great areas, and is out of pocket little or no money at this point.

As soon as the kids sold this was going to happen no matter what.



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Re: Art Van is out of money and is liquidating and closing all stores

Post by Lester The Nightfly » Fri Mar 06, 2020 7:16 pm

Excellent post MW. Fair to say we can't paint all PE firms with the same brush, some actually do unearth value in a company by ferreting out inefficiencies or infusing capital for growth but there are also many that structure the deal largely based on collecting large acquisition fees (the vig) at the expense of doing anything in terms of developing the future of the business.



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Re: Art Van is out of money and is liquidating and closing all stores

Post by MWmetalhead » Fri Mar 06, 2020 7:46 pm

It is unclear to me if THLP is the landlord of the Art Van real estate. It also unclear to me if the real estate is free of bank liens. Perhaps 696lover has some inside info on this matter.

If Lee believes the real estate is worth considerably more than $550 million, then your theory may have merit, 696lover. However, that theory seems inconsistent with how THLP generally conducts its investment affairs.

I think this is a case of talent drain, mismanagement, and poor strategy, not an innate desire from day one to rip the company to shreds and sell pieces of the carcass. We can certainly blame THLP for the mismanagement and poor strategic execution; they hired the executives that succeeded Yost. The market expansion did come at a bad time. The ship was seemingly rudderless around that time.

Good article from Furniture Today:
https://www.furnituretoday.com/furnitur ... t-art-van/

(I don't buy the line of thinking that everything was hunky dory in 2017, though.)

By the way, I appreciate the nice words, Lester. Thank you!



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Re: Art Van is out of money and is liquidating and closing all stores

Post by Rate This » Fri Mar 06, 2020 7:52 pm

MWmetalhead wrote:
Fri Mar 06, 2020 7:46 pm
It is unclear to me if THLP is the landlord of the Art Van real estate. It also unclear to me if the real estate is free of bank liens. Perhaps 696lover has some inside info on this matter.

If Lee believes the real estate is worth considerably more than $550 million, then your theory may have merit, 696lover. However, that theory seems inconsistent with how THLP generally conducts its investment affairs.

I think this is a simple case of mismanagement and poor strategy, not an innate desire from day one to rip the company to shreds and sell pieces of the carcass.

Good article from Furniture Today:
https://www.furnituretoday.com/furnitur ... t-art-van/

By the way, I appreciate the nice words, Lester. Thank you!
What sorts of entities are typically buying companies for parts then? They won’t openly say “gee this would be nice to smash with a hammer into little itty bitty pieces” but clearly some deals are done with that as end goal...



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MWmetalhead
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Re: Art Van is out of money and is liquidating and closing all stores

Post by MWmetalhead » Fri Mar 06, 2020 8:28 pm

Vulture capitalists usually show up at bankruptcy court auctions, or if a company has not yet filed bankruptcy -- after a company is reported as having retained "restructuring advisors." Vulture capital firms, for the most part, exclusively specialize in such activity.

I think the "vulture" label is applied to traditional private equity firms when investments go sour or when headcount reductions occur due to consolidation.

Let's face it, when the investment thesis fails, sadly hard working employees usually fall victim and longstanding businesses can wind up being liquidated (such is the case with Art Van).

What assets might vulture capitalists be interested in acquiring?
- Accts Receivable or other claims (such as "avoidance action" claims in BK court)
- Customer lists
- Leftover inventory
- Real estate
- Various forms of intellectual property (trademarks, patents, etc.)



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Some Guy from Toledo
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Re: Art Van is out of money and is liquidating and closing all stores

Post by Some Guy from Toledo » Fri Mar 06, 2020 10:15 pm

Sad to see them go, they already managed to make it to my area a decade ago (I've been to their "Sleep Shop" near me).



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Re: Art Van is out of money and is liquidating and closing all stores

Post by Mega Hertz » Fri Mar 06, 2020 10:16 pm

I'm still bummed about Lasky Furniture and now this.


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