The Untold Backstory of Metro Peech & Browne's Bankruptcy - Spear Capital
Major wholesaler, Metro Peech & Brown, just went bankrupt but the most interesting story is actually about Spear Capital...
...the Norwegian-linked Private Equity firm that invested in Metro Peech.
This thread that unpacks the story that most people are missing 🧵👇🏿
Background: Metro Peech & Brown opened its first store in 2010 & grew rapidly to 18 stores across Zimbabwe.
It has revenues of over US$70m & is backed by Private Equity (PE) Firm, Spear Capital.
On 24th August it was officially deemed bankrupt & filed for corporate rescue.
Spear Capital is a Norwegian Private Equity-initiative with local African presence. The fund targets SMEs in Sub Saharan Africa and is almost fully funded by Norwegian investors.
It has been active in Zimbabwe since 2013.
In 2013, its first fund raised $22 million & their most recent fund started in 2017 has raised $40 million.
Raising a second bigger fund indicates that Spear Capital must have been viewed as successful.
Unfortunately, Metro Peech is going to be a big blemish.
Metro Peech was Spear Capitals first investment in 2013. The amount invested is not disclosed but is likely to have been about $5million which is their average investment size.
This was was when Zimbabwe was dollarised and many investors came hunting for returns.
Generally PE firms like Spear Captital target an Internal Rate of Return (IRR) of 20% - 25% & a multiple on invested capital (MOIC) of 2.5x - 3.5x.
Hyper simplified this means if you invest $100 today you expect that investment to pay back $250 - $350 in 5 years.
For Spear Capital, this means the assumed $5million investment in Metro Peech in 2013 would have been targeted to be worth $12.5 - $17.5 million in 2018 and much much more by 2023.
This investment however is unfortunately now worth $0 😢 but it gets worse.
Spear Capital seems to have more exposure to Metro Peech that the initial investment.
In Metro Peech's creditors there is $5,075,944 that owing to Greenwave Millings and Greenwave Trading flagged as intercompany.
Who is that?
Greenwave seems to be a related food manufacturing and processing company that produces items for Metro Peech's "House Brand"
The interesting part is Spear Capital recently invested in Greenwave as well.
On 21 Feb 2023 Spear Capital announced its investment in Greenwave Milling.
Now this poses some questions.
If Spear Capital knew of the issues at Metro Peech why would they have invested in a company so closely linked to Metro Peech?
On the other hand if Spear Capital did not know of the issues at Metro Peech, how was it possible to hide a $13million working capital hole from seasoned investors.
Especially since $5million of that hole was money owed to Greenwave the recent investment . 🤔
If Spear Capital had knowledge of the issues at Metro Peech, could their investment in Greenwave be interpreted as an indirect attempt to bail out Metro Peech?
E.g. by investing in Greenwave, they enabled it to provide favorable credit terms to Metro Peech of $5 million?
Either way it hard to understand why Spear Capital would invest in Greenwave & then allow $5 million of credit exposure to Metro Peech which they wont get back.
Was there fraud somewhere?
Whatever the case, Greenwave may now also be compromised.
I don't know many SMEs that can be owed $5 million and just continue trading.
If Greenwave is in trouble this could result in a situation where the investment in Metro Peech is worth $0 and Greenwave is on course to be worth $0.
That's not good.
What happens now? Can Metro Peech be saved via corporate rescue and Spear Capital get something out of their investment?
In theory yes - in practice it will be very challenging.
The main advantage that Metro Peech has is the brand and the locations of the stores.
I think the value of brand loyalty in Zimbabwe is not that high.
If the pricing is good people will switch and given the situation, Metro Peech can't afford to discount too heavily.
The store locations is an advantage but it seems that they have been failing to pay rent..
..This could means that the Landlords could cancel leases and other players take the prime locations.
I am sure competitors are smelling blood and looking to do just that.
I hope I am wrong however and things can turn around and Spear Capital can make decent returns.
It is great that Spear Capital is investing in Zimbabwe and I hope this doesn't scare them or other investors away from the market.
Their second fund is planning to raise $75 million, a lot of which could be deployed in Zimbabwe.
I hope they can turn this around.
Full disclaimer I don't have any inside knowledge or information I am just analyzing based on information that is publicly available and so I could be missing something or interpreting something incorrectly.
If so, please let me know. What do you think?
If you found the above thread interesting you should definitely consider reading the below thread as well about another big retailer, OK Zimbabwe.