Hays travel

Hays Travel buys Thomas Cook

John Hays is clearly a very bright man with a degree in Mathematics from Oxford and an MBA . It seems that Hays are also decent people and my opinion is that there has been a lot of  “thinking with the heart” as well as the head when coming to this decision.

Saving jobs and livelihoods is brilliant and I would never criticise anyone for doing that. I am not criticising Hays for buying the stores but like John Hays has stated it will be a “tough task”.  He is 100% correct it will be tough because his team will need to do a huge amount of work if this expansion is to succeed.

I would love to know how he and his fellow hays travel directors came to the decision to  “buy” 555  Thomas Cook stores. With any portfolio of shops there will be some great stores and some bad apples. There will be profitable locations and ones that are loss making. On a portfolio of 555 shops there will be stores that are relatively new that have been recently refurbished and there are others that will require significant investment just to make them look presentable. Each of the 555 stores (or that ones that will trade) will presumably also have to be rebranded and this won’t be cheap.

When someone “buys” stores under this sort of situation it usually means that they take an assignment of the existing leases. Taking an assignment means that not only the assets are obtained i.e. the benefit of the remaining lease term and the town centre location but also the liabilities are obtained. It may be that KPMG has agreed surrender and new lease deals with all of the landlords but in this case I doubt it.

There will be easily identifiable Thomas Cook liabilities that I am sure that hays travel are aware of such as arrears of rent, service charge, insurance and business rates.

There will also likely be other inherited liabilities that may not have shown up on the due diligence undertaken on 555 stores in such a short period of time.

These “hidden” liabilities include but are not limited to unsettled rent reviews, stores requiring significant repairs or maintenance works, un-billed service charge liabilities  (unreconciled but accrued) accounts from landlords potentially going back several years, internal and external redecoration obligations and exit costs such as dilapidations. Some other hidden issues and problems will only become apparent when the store is physically inspected and others will only become apparent when the store opens and trades.

Some shops may on paper look profitable but if the lease is close to expiry the profit for the remainder of the lease term likely won’t outweigh the costs.

The reason for this is that there will be costs associated with both lease renewal and exit with professional and legal fees applying in both cases. Where a lease is to be renewed the rent will be to upward only to open market  (potentially wiping out any profit) and where the lease isn’t going to be renewed it will attract exit costs such as strip out and dilapidations which are likely to be thousands of pounds.

So where does that leave Hays travel ? In my opinion full due diligence  of the thomas cook situation won’t have been done pre-purchase so it needs to be done as soon as possible and costs (and exposure to future costs) need to be mitigated as quickly as possible. Bad apple shops need to be disposed of (if possible) to prevent them dragging the company down.

I would hope that Hays have been in dialogue with landlords prior to purchase but again without detailed knowledge of each store and the true profitability of each store how would Hays know what to ask for? Landlords have a massive role to play here and need to be sensible. I am sure a lot of landlords will look to work with Hays but if too many landlords are greedy then this project will fail. If landlords are sensible then Hays have a chance of success.

John Hays is a clever chap and it appears that his intentions are noble so I wish him every success with this endeavour.Thomas Cook