A Billion-Dollar Bet Gone Wrong: The Fall of Franchise Group Inc.
A Personal Apology
Bryant Riley, co-founder of investment firm B. Riley Financial Inc., is reeling from the collapse of Franchise Group Inc., a company his firm helped take private just over a year ago. In a candid email to employees, Riley expressed his deep disappointment and personal regret over the outcome, saying he feels “personally sick” about the result.
A Deal Gone Sour
The $2.8 billion buyout of Franchise Group Inc. (FRG) was meant to be a key holding for B. Riley Financial Inc. However, the company’s Chapter 11 bankruptcy filing has wiped out shareholders, resulting in a $120 million impairment for Riley’s firm. This comes on top of previously announced writedowns of up to $370 million.
The Rise and Fall of FRG
FRG, which owns brands like Buddy’s Home Furnishings and the Vitamin Shoppe, will be taken over by its lenders under a new plan. While some of the business will continue to operate, the implosion of FRG marks a stunning reversal for Riley and his company. The investment was initially touted as a success, but it quickly turned sour due to a combination of factors, including a decline in consumer spending and the fallout from a criminal investigation into FRG’s former CEO, Brian Kahn.
A Confluence of Events
Riley attributed the failure of FRG to a “confluence of events” that derailed the original investment thesis. These included a sharp decline in consumer spending, the Prophecy scandal, and the related federal investigation into Brian Kahn. The company’s businesses failed to perform as expected, leading to a devastating outcome.
The Fallout
B. Riley Financial Inc.’s shares have plummeted over 85% in the past year, while investors betting against the stock have been critical of Riley’s handling of the FRG deal. The firm has suspended its dividend and is selling off assets to focus on debt reduction. Riley apologized to employees for the “pain” they have had to endure, citing pressure from “internet short sellers,” “one-sided journalists,” and “competitors aggressively targeting” the company.
A Path Forward
Despite the setbacks, Riley remains optimistic about the future. He expects the firm’s debt to be paid down to $125 million by the end of the month, leaving enough capital to drive growth. “OUR FIRM WILL MOVE PAST THIS AND THRIVE,” Riley wrote in his email to employees. “Despite the negative headlines, we are in far better shape than folks give us credit for.”
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