Handy Hardware Answers Retailer, Vendor Questions

In light of Handy Hardware Wholesale Inc.’s recent announcement of being acquired by a subsidiary of the private equity firm Littlejohn & Co., Hardware Retailing editors spoke with Mickey Schulte, vice president of marketing and purchasing at Handy Hardware, and Morrie Arron, restructuring advisor from MCA Financial who works with Handy, for company updates in the following exclusive interview.

Hardware Retailing (HR): Can you tell me about how the acquisition with Littlejohn developed?

Handy Hardware (HH):  HBC Home & Hardware Products has been a good supply partner for Handy over the years. It is an unsecured creditor of Handy. As part of its review of the Chapter 11, it made sense to consider restructuring options with Littlejohn due to its experience in distribution, specifically with its ownership of HBC Home & Hardware Products, a leading distributor of hardware products to independent retailers similar to that of Handy. It’s important to note, however, that Handy will not be owned by HBC Home & Hardware Products. Handy will be acquired by a separate entity owned by a subsidiary of Littlejohn and a sister company to HBC.

We had a few other parties that expressed interest during our due diligence and one in particular who submitted a competing letter of intent. After negotiations and consideration of the proposals, the creditors’ committee, members’ committee and board of directors of Handy came to the same conclusion that Littlejohn offered the most opportunity for all stakeholders.

A big part of this decision was to get the best deal for the creditors while providing a far and acceptable outcome for the members.  Littlejohn was willing to help us do that.  The Littlejohn opportunity will allow Handy to remain independent and keep the company true to its historical roots as a low-cost, no-frills supplier.

HR: How will the acquisition affect the cost-plus pricing model or other retail services? What can members expect?

HH: We have no anticipations of anything changing in terms of how Handy does business.

HR: How will the acquisition affect vendor relationships?

HH: We appreciate the support from the vendor community; we’re now looking forward to getting back to business as usual. With their support during this time, we’ve been able to get our feet underneath us and return our service levels back to more acceptable levels. The immediate funding from Littlejohn as part of the proposed acquisition (a $4 million investment into Handy’s working capital line of credit) will help bring service levels back to historical levels.

HR: Does the acquisition mean that Handy Hardware is now private? What does this mean for members’ equity?

HH: The Littlejohn subsidiary will own 100 percent of Handy Hardware’s equity upon closing. The members’ equity will be eliminated as a result of the bankruptcy. The members will not be asked for any further financial contribution or buy-in.

HR: When will member contributions cease?

HH: We stopped charging for shares at the end of December. We have implemented a warehouse service fee in its place. The fee is 2 percent on the first $84,000 of warehouse purchases. The 2 percent fee will be eliminated in July, upon the closing of the Littlejohn transaction.

HR: Now that Littlejohn has privatized Handy, can non-members take advantage of Handy Hardware services?

HH: We believe Littlejohn has a vision of maintaining the co-op feel, not just a buyer-customer relationship, but [the acquisition] will open up doors to new customers just like Handy has always done.

HR: With so much competition in today’s market for wholesalers, especially in the southern region, how do you think the acquisition will affect Handy’s position in the market?

HH: Handy was growing before this acquisition and will continue to grow. Handy has always been very competitive. Handy’s no-frills approach will always be popular among the retail trade, as it has been more than 50 years. The core business hasn’t changed; it has constantly evolved and become better.

This new partnership allows us to get back to our roots as a no-frills cost provider.

HR: When will the purchase be finalized?

HH: We have signed a letter of intent with Littlejohn, and we anticipate the court approval by mid-July 2013. Even though this transaction isn’t expected to close until July, Littlejohn will be infusing $4 million of working capital by May 15. So, within two weeks, the company will have a capital contribution from Littlejohn to show Littlejohn’s support for the deal.

HR: Will your fall market still take place?

HH: The market is still on. It will run Aug. 15-17 in San Antonio. Our members are already anticipating a great Fall Market.