At the end of April IG Design Group, which trades as Design Group, notified that it could offload the loss-making Design Group Americas (DGA) operation due to the potential adverse effects of President Trump’s tariff regime.
The deal announced on Friday afternoon (30 May) involves offloading it to HUK 168, a special purpose vehicle of Hilco Capital.
Design Group’s shares jumped on the news, and were up 33.86% to 85.00p at the close of trading (52-week high: 240.00p, low: 45.92p).
The deal to sell the wing involves a nominal upfront cash payment of just $1, followed by 75% of any proceeds from the post-disposal sale or realisation of DGA or its assets by the new owner.
The group will receive its 75% share of the “relevant proceeds consideration”, if any, as and when the buyer receives such proceeds.
This is subject to applicable deductions and a consideration regarding working capital provided by the buyer.
There is no defined timeline or absolute obligation for Hilco to sell or realise the DGA assets, nor any constraints on what it can do with DGA.
It could be possible that Design Group would receive just $1, and it’s also possible that DGA could be operated in the long-term under its new ownership, without disposing or realising its assets, in which case Design Group will not receive any “relevant proceeds consideration”.
DGA encompasses all the group’s US-based operations, “with some supporting operations also based in India, Hong Kong, China, the UK, Mexico and Australia”.
The division – Design Group’s biggest – had sales of $500.3m in the year to 31 March 2024 and made an operating profit, pre-tax, of $4.9m. The overall group had sales of just over $800m in the year to 31 March 2024.
As at 30 September 2024, DGA had un-audited net assets of $245.4m, including intangibles and deferred tax assets of $94m.
The group has already flagged that it will have to make a “very material write-down” due to its impaired investment in the US business, and will also push back publication of its year-end results due to the sale.
Design Group stated: “The disposal will enable the group to exit a structurally challenged and loss-making part of the business, quickly mitigating the further financial and operational impact the Group would have otherwise experienced.
“The Disposal is occurring ahead of DGA's seasonal peak working capital period. As such, the board has sought to act decisively to protect the wider group.”
Design Group chair Stewart Gilliland described the headwinds facing the US wing as “untenable” despite best efforts being made to turn it around.
Recent events in North America and the evolving tariff regime had compounded the situation.
Gilliland said: “The board has acted decisively and at pace to safeguard the wider group from both further financial exposure at a crucial time in the group's working capital cycle and also the escalating risks of prolonged underperformance. By entering into a realisation agreement with the buyer the group has removed downside risk while retaining optionality on any value that may be realised.”
UK-headquartered IG Design Group started reporting in dollars after two big acquisitions there made the US the biggest part of its business. In 2018 it acquired Impact Innovations which required a total funding requirement of £84.4m, and in January 2020 raised £120m to buy CSS Industries for £90m, in a move that doubled the size of its US business.
