Nexia now looks to forge $200M retail venture
By Clint Engel -- Furniture Today, June 24, 2002
SALT LAKE CITY — Nexia Holdings, which earlier this month said it would buy up some 50 furniture retailers with combined revenue of over $90 million, now intends to acquire stores representing about $200 million in revenue.
Ronnie Hale, a partner in Wasatch Business Investors, an acquisition and investment firm here working with Nexia to develop the furniture project, said a number of retailers have contacted the company, asking to participate in the consolidated, publicly traded company.
Wasatch is looking to put the furniture retailing company together within two years, Hale said, but added his firm realizes that's a very aggressive goal.
Nexia Holdings, a publicly held shell company, initially said it would issue letters of intent to purchase mid-market furniture retailers, with about 50 identified as potential candidates. But some larger stores now have indicated interest in the venture, Hale said.
The plan is to combine the services, amenities and best practices of neighborhood stores with the efficiencies, expected capital capabilities and other advantages of a larger, public company.
Neither Hale nor one of his business partners, Shawn Hammond, would name the retailers they are talking to, but Hale said that Utah, Oregon, California, Florida, Texas, New York and Pennsylvania are among the states where Wasatch is evaluating stores.
Hammond said Wasatch is focusing on companies with revenue between $2 million and $10 million, but also is looking at a few larger retailers with sales of up to $40 million. In most cases, storeowners are expected to stay on as owners in the new furniture company and as local operators.
"We are concentrating on stores that have displayed consistent growth and profits, with owners and managers that have a track record of success," Hammond said. Most transactions with furniture retailers will consist of cash payments and stock in the furniture subsidiary, he said.
Most of the people he's talking to are not looking for a way out of the industry, Hammond said. "They see an opportunity to do more than what they're currently doing. They have expansion plans, but don't have the capital or wherewithal to do it on their own."
Hale anticipated having 10 deals put together by the end of this year, but couldn't say when the first would occur.
The Nexia announcement surprised some in the industry who had never heard of the company. Many questions remain unanswered, including who will be acquired, where will a penny-stock operation like Nexia get the money to finance the deals, and who may be on board with industry expertise.
Jerry Epperson, industry analyst and managing director of Mann, Armistead & Epperson, had not heard of Nexia, but he said the plan could be timely in the wake of the big retail collapses of the past few years.
"There really hasn't been a major store acquirer for a number of years" except for an investment firm's pending acquisition of Wickes, and retail valuations are pretty attractive these days, he said.
But how Nexia will pay for acquisitions remains to be seen, Epperson said.
Changes at Nexia
Earlier this year, Nexia, which recently changed its name from Kelly's Coffee Group, acquired real estate and other assets of Axia Group, another public company. Axia received an 82% stake in Nexia, making Nexia its majority-owned subsidiary.
For the quarter ended March 31, Nexia reported a net loss of $305,222 on revenues of $119,099, and an operating loss of $285,332, citing "acquisition of operations, the increase in costs associated with integrating them and the lack of sufficient revenue to cover the newly acquired operations."
Nexia also reported a working capital deficit of $423,577 versus a surplus of $227,398 at the end of December "due to assuming a large amount of debt associated with the increase in assets." Last week, Nexia's stock was trading over the counter for less than three cents a share.
But Hammond said it is Wasatch's job to finance the acquisitions, not Nexia's. He said Nexia essentially is a small shell company that Wasatch is using as a temporary home for the furniture subsidiary. Hammond expects the furniture subsidiary to go public within a year, when it should have grown to at least $50 million in annual sales.
"It will be our responsibility to interact and coordinate with the business owners, the public company, financing sources and industry advisors," Hammond said. Wasatch also will be the majority shareholder in the furniture subsidiary.
"WBI has the resources and commitment from investors to facilitate the entire project," he said. "We have long-established relationships and alliances with private investment groups that have investment pools exceeding $100 million, senior and subordinate lenders and capital firms that specialize in raising capital in secondary market offerings."
Looking for a listing
While Wasatch is handling the acquisitions, Nexia will work on the registration and filings needed to get the holding company a ticker symbol for trading on a major stock exchange, Hammond said.
Nexia also provides the new company a large, active shareholder base for when the new furniture company is spun off in a secondary offering, he said.
Wasatch, meanwhile, has "industry experts with a proven track record to handle the operations and efficiencies inside the company, and we will rely on their experience heavily throughout the project," Hammond said.
He declined to name those experts, but said the main advisor has experience both on the private and public side of the retail furniture business as a chief operating officer. "He's had incredible successes," Hammond said.
He said Wasatch is leaning toward a room-package format for its concept store, but "we're not going to pigeonhole ourselves with one format. We're trying to be very flexible with our business plans to be able to move with how the market dictates and what makes sense."
Most of the store names would eventually change to the new company name, but how quickly that happens will depend on the integration plans developed, he said.
