Ares and Farallon eye control of builders’ merchant IBMG

Introduction

Independent Builders Merchant Group (IBMG), one of Britain’s largest networks of builders’ merchants, is facing a significant shift in its ownership structure. Lenders Ares Management Corporation and Farallon Capital Europe are reportedly in discussions to take control of the company. These talks are part of ongoing negotiations with IBMG’s private equity backer, Cairngorm Capital, regarding new funding requirements. The potential takeover is expected to be facilitated through a restructuring of IBMG’s debt, avoiding any formal insolvency proceedings. This development highlights the challenging financial landscape faced by IBMG, despite its rapid growth and extensive operations across the southern regions of England.

The Push for Control: Ares and Farallon’s Potential Takeover

Ares Management and Farallon Capital, two prominent investment firms, are positioning themselves to assume ownership of IBMG. According to sources, the takeover is likely to be achieved through a debt restructuring process rather than an insolvency event. This approach would allow Ares and Farallon to gain control while ensuring continuity for IBMG’s operations. The involvement of Interpath Advisory, a professional services firm, underscores the complexity of the situation. Interpath is working closely with IBMG to implement cost reduction initiatives, which are deemed necessary due to the unfavorable economic conditions the company is currently navigating.

IBMG’s Background and Growth

Founded in 2018 with financial support from Cairngorm Capital, IBMG has expanded rapidly through strategic acquisitions. The company has grown to operate more than 170 branches across the south of England, employing over 2,000 people. Its latest financial year saw revenues of approximately £650 million, demonstrating its significant presence in the builders’ merchant sector. However, Cairngorm Capital’s recent characterization of IBMG as a ‘realised investment’ on its website—later clarified as an error—suggests that the private equity firm may be reassessing its involvement. Despite this, Cairngorm remains a majority shareholder, although it has realized some of its investment in the company.

Operations and Market Presence

IBMG’s operations are diverse, encompassing several key divisions such as plumbing and heating, roofing, and timber processing and distribution. This diversified approach has enabled the company to maintain a strong market presence, catering to a wide range of customers in the construction and building industries. The company’s extensive network of branches and significant workforce underscore its importance as a major player in the sector. However, the current challenging cost environment has necessitated the implementation of cost reduction measures, as acknowledged by Cairngorm Capital.

Ares and Farallon’s Involvement and New Capital

In April 2024, IBMG announced that it had secured new capital from Ares and Farallon, with Cairngorm Capital stating that this investment was made with its continued support. However, the involvement of these two investment firms appears to be more profound than initially suggested. Their potential takeover of IBMG signals a shift in the company’s ownership structure, potentially altering its strategic direction. The new capital injection is seen as a lifeline for IBMG, enabling it to navigate the current challenging economic conditions. Nevertheless, the involvement of Ares and Farallon raises questions about the future role of Cairngorm Capital and the implications for IBMG’s stakeholders, including its employees and customers.

Conclusion: The Future of IBMG

The looming takeover of IBMG by Ares and Farallon marks a critical juncture in the company’s history. While the debt restructuring process aims to avoid insolvency and ensure operational continuity, the change in ownership could have far-reaching implications. Cairngorm Capital’s role as a majority shareholder may diminish, but its continued involvement suggests that it retains some level of influence. The implementation of cost reduction initiatives, facilitated by Interpath Advisory, will likely be a key focus in the coming weeks and months. As the situation unfolds, all eyes will be on how IBMG navigates this transition and whether the new ownership structure will position the company for long-term success. For now, Ares, Farallon, and Interpath have declined to comment on the matter, leaving many questions unanswered.