Paperchase

Transaction Background

In June 1996 Graphite Capital led the management buy-out of Paperchase from WHSmith. Paperchase is a specialist retailer of stationery products and greeting cards. At the time of the buy-out the business had 12 stores and made an operating loss. The retail concept offered the scope for a roll-out in different locations and the opportunity to increase profits significantly.

Deal Attractions

Paperchase had operated several different store formats at the time of the management buy-out. By adapting the store offering, Paperchase could expand in a number of different locations, e.g. railway stations and concessions within larger stores. The relationship with Borders Inc, which had invested in the business, offered the possibility of more in-store concessions with a relatively low capital outlay and short pay-back period. The low level of profit made the acquisition price very attractive for Graphite.

Achievements

we recruited a strong retail team including a new chairman, finance director, operations director and IT director
Paperchase experienced a difficult trading period followingan attempt to expand in the US
focusing on the core UK business the company returned to profit and generated cash to fund a store expansion programme
the number of stores increased from 12 to 61
annual sales more than trebled from £7.7 million to £27.4 million
Paperchase developed a wide range of retail formats which included two flagship stores, nine stand-alone stores in high profile locations such as Covent Garden and Bluewater, outlets in six railway stations and 44 concessions in leading retailers

Exit

the business was sold in July 2004 to Borders, the US-based books, music and movie retailer
we successfully turned Paperchase around and generated nearly 3 times the cost of our investment