The Body Shop collapsed into administration after the retailer’s private equity buyer failed to secure new funding when HSBC withdrew its line of credit.
According to The Telegraph, a shortfall of at least £100m occurred after Aurelius snapped up the beauty chain in November from Brazilian cosmetics giant Natura.
The funding gap led to The Body Shop’s rapid downfall in February, which resulted in the new owner placing the retailer into administration just three months after its £207m purchase.
HSBC, which was a lender of The Body Shop under its previous owner, is understood to have reviewed its relationship with the retailer following Natura’s decision to sell it and the bank subsequently gave The Body Shop at least 18 months’ notice of its decision to withdraw funding.
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However, Aurelius failed to act upon the funding withdrawal, prompting the retailer’s UK arm to file for insolvency and subsequently, its US, German and Canadian arms.
A source told the publication that the private equity firm was never made aware of HSBC’s decision to stop lending and Aurelius discovered The Body Shop’s finances were allegedly in a worse state than expected after completing the acquisition in January.
Documents released by the administrators at FRP state: “Following completion of the sale, the company was informed by its bankers that they intended to cease providing banking facilities.”
This resulted in the retailer being cut off from tens of millions of pounds in credit, which “ultimately resulted in a substantial unplanned cash outflow from the business”.
The administrators added: “These events combined gave rise to a forecast peak funding requirement for the company in excess of £100m, significantly greater than the requirement identified as part of the acquisition process.
“The substantial difference between the anticipated funding requirements and the reality of the company’s position, combined with the business’ poor trading performance, meant the shareholders could not commit to the required level of funding.”
Scrutiny around The Body Shop’s collapse heightened last month when it emerged that administrators are investigating claims that millions of pounds were taken out of the business prior to its sale to Aurelius.
It is understood that the private equity firm is in pole position to reclaim The Body Shop’s assets, free of debt, if no other bidder materialises during the administration process.
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