GAME: A Hidden Gem for Turnaround Experts

A company in administration is not necessarily a failed business. Over the last few years, a number of significant opportunities for profit have laid hidden in businesses that have collapsed in a blaze of headlines. Game, the UK video retailer, is a perfect example. The company entered administration in early 2012 after suffering acute financial distress following what its buyers have called an "overly ambitious international expansion strategy".

But, after a turnaround backed by OpCapita, the company has found a new route to profit, proving the viability of the business itself. We've taken a closer look at Game's story and the changes that have helped to turn around its fortunes.

The collapse

Game entered administration towards the end of March 2012. In the year to January 2012, the firm had recorded a loss of almost £18 million and the future looked bleak. Game struggled with high fixed costs and a downturn in trade from customers who were switching to downloading games from the internet.

Difficulties with suppliers sealed the company's fate, tipping it into administration. Electronic Arts (EA) was one of the biggest suppliers to cause problems for Game. The retailer had previously put in a request to EA and others for help with financing during a difficult trading period. While many major suppliers were amenable and helped where possible, EA announced in the month running up to Game's administration that it would not be supplying the retailer with Mass Effect 3, a long-awaited game that had been pre-ordered by many Game customers.

Not only did this leave the company with supply chain problems, but customer faith in the business also took a blow as angry buyers wondered where their pre-ordered games were.

This was the last straw for the company, which was labouring under £85m of debt, and PwC were very quickly appointed as administrators. But PwC astutely recognised the inherent value in the business and wasted no time in looking for a buyer. An important consideration was the vital requirement for business continuity, to minimise the administration's impact on trading.

Enter the opportunist

The administrators hit early success - private investment firm OpCapita came forward to buy the distressed business for a nominal amount within a week of it first entering administration. The buyers saw a strong future in the company and were prepared to make the necessary cash injections. Henry Jackson, managing partner of OpCapita, said at the time: "We strongly believe there is a place on the high street for a video gaming specialist and GAME is the leading brand in a £2.8 billion market in the UK."

The Turnaround Process

One of the first decisions made by PwC was an instant disposal of unprofitable assets and a reduction in staff. A total of 277 out of the company's 609 stores were closed and 2,100 staff (around 40 per cent of Game's employees) were made redundant. Mike Jervis, joint administrator and partner at PwC, said of the decision to cut staff: "The recent job losses are regrettable but will place the company in a stronger position while we explore opportunities to conclude a sale."

Over the course of the following year, Game's new owners, OpCapita, implemented a 'value creation plan' to secure the company's future in the UK.

The retail investment specialist quickly placed a new senior management team into Game, ensuring that the new appointments had a broad mix of experience and established track records in restructuring. The focus was then shifted to rebuilding broken ties with both core parties in Game's supply chain and its customers.

OpCapita made the rebuilding of relationships with suppliers, including ES, a key focus for its turnaround. It also vowed to take advantage of assets like the company's database of 12 million loyalty card holders to implement a re-engagement plan and boost customer loyalty back to earlier levels. Further work to grow the online sales channel also helped make some improvements in this area.

The company also decided to increase the focus on pre-owned game sales, helping the business take advantage of an increasingly popular trade.


And now?

Game's UK retail outlets now generate in the region of £600 million a year in sales through a network of 339 stores across the country. Its business is smaller than it was to begin with, but a secure future is now on the cards; in fact the company was confident enough that it even bid to buy some of HMV's stores out of administration in early 2013.

There were some significant adjustments made to the management and operation of the retailer but no major restructuring was implemented in turning Game around. Essentially, although Game clearly had its problems, it was not fundamentally flawed as a business and just a year after being sold out of administration the company is well on its way to providing its new owners with a profitable enterprise.

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