Were City Link’s owners ruthless and lacking in commitment?
HSS Editor Simon Duddy asks if Better Capital deserve the ‘bandits’ charge levelled at them by Mike Cash RMT General Secretary.
I went to a City Link press conference a few years ago, which was very upbeat (they always are) but at the same time I thought it was odd the company was owned by Rentokil. There was no logical link there and you have to wonder how committed Rentokil was.
In any event, Rentokil sold City Link to private equity firm Better Capital for £1 in April 2013. So clearly, City Link was not a thriving business, despite being in the middle of an eCommerce parcels boom.
Better Capital invested £40m in City Link, a modest bet in private equity terms, no doubt hoping the billowing sails of the good ship eCommerce would lead to a quick turnaround to profit.
Clearly this didn’t happen. City Link had the parcel volume but it couldn’t get a profit out of it.
The RMT union representing City Link’s redundant workforce have been infuriated by the sudden collapse. General secretary Mike Cash went as far as to call the venture capitalists ‘bandits’. But it’s hard to say definitively if Better Capital could have done more to make it work.
That said, there are reasons to questions the depth of Better Capital’s commitment.
For one, they didn’t stay very long, around 20 months.
Secondly they invested in City Link via a series of loans which means they are classed as a secured creditor and therefore at the front of the queue for cash when the administrators finish hauling it all in.
They reckon they’ll get £20m back. It’s a bit like placing a bet at the bookies knowing you’ll get half your stake back if it goes bad. How much commitment does this show on the part of Better Capital?
Thirdly, the timing was ruthless. Better Capital’s chances of getting money back relies on the administrator chasing unpaid bills, the high tide of which occurs at Christmas. Therefore Christmas Eve was the most efficient time to shut the operation down. That it is also the most heartless time for the thousands of staff and contractors connected to City Link seems to have been an irrelevance.
I’d be interested to hear what you think of the City Link debacle and what is tells us about the parcels and broader logistics market. Email [email protected]
