THG rescued City AM from going out of business with a deadline day offer of £1.5m, it has been revealed.
The Manchester-headquartered group was the only bidder to step forward for any part of the London freesheet after a formal sale process was launched in June.
A deal was concluded and announced on July 26 but the price was not revealed at the time.
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However, a new document filed by administrators BDO has outlined exactly how much THG paid for City AM, the story behind the company collapsing into administration and how much it owed to its creditors.
Background City AM was incorporated in November 2004 and grew to employ almost 40 members of staff.
The business publication had been half-owned by two Dutch private investors, while chief executive Jens Torpe and managing director Lawson Muncaster also owned about a quarter.
City AM is distributed from about 400 travel hubs and commuter locations, as well as about 1,600 London offices.
The group also holds content syndication partnerships with firms including Google and Bloomberg. The business was primarily funded through advertising revenues.
In the year to December 31, 2019, the company generated revenues of £7.6m and a pre-tax profit of £218,000.
How City AM entered administration BDO’s document states that the company’s ability to trade was “significantly impacted” by the Covid-19 pandemic. Lockdown restrictions “resulted in a sharp decline” in the number of commuters and therefore readers of the printed paper.
This then impacted on the willingness of clients to pay for advertising space and “the printing and distribution of the printed paper became unviable”. In March 2020, the directors decided to stop publishing the paper.
While limited advertising revenue was still being generated online, the company’s turnover in 2020 fell 61% from 2019 to £3m and it made a pre-tax loss of £540,000.
During the pandemic, employees were furloughed and payment plans were established with key creditors. The company also took out CBILs loans of £800,000 from Metro Bank.
In October 2021, City AM began publishing its printed paper again but the cost of doing so and of distributing it had “increased significantly”.
In the year to December 31, 2021, turnover increased to £3.7m and it generated a pre-tax profit of £59,000.
However, BDO said that “trading conditions remained challenging” and in 2022 the company made a pre-tax loss of £584,000 despite its revenue rising to £6.1m.
BDO said: “The directors, who were also the shareholders of the company, recognised that significant additional investment was required to fund losses, reduce debt and develop the website offering.
“The existing shareholders were not in a position to invest further funds and therefore, in the final quarter of 2022, began actively seeking third party investment.
“The investor was expected to inject additional funding via the purchase of 25% of the share capital by way of a new share issue.”
However, by May 2023 negotiations with the potential investor had broken down.
On June 6, the company engaged FRP to market it and/or its business and assets for sale and a deadline of July 14 was set.
The rescue deal By the deadline no offers to buy the share capital of the company had been received.
However, an offer to purchase the business and assets, excluding liabilities, for £1.5m was submitted by THG on deadline day.
BDO said: “The shareholders were not able to inject additional funding and Metro declined to increase the company’s facilities.
“The directors and their advisors did not consider that alternative third party funders would be in a position to provide additional working capital given the company was heavily loss making and did not have unencumbered assets to act as collateral for further loans.
“Management was aware that the company had insufficient cash available to settle salaries and critical suppliers before the July month end and therefore it was not possible to rescue the company and an insolvency process was both inevitable and imminent.
“It was on that basis that the company began to negotiate with THG in respect of its offer as it was considered this was likely to result in a better outcome for creditors than any alternative options.”
While the negotiations were going on, City AM was unable to pay its salaries on July 25. THG agreed to pay £92,542 on July 24 to cover the payment which will rank as an unsecured creditor for dividend purposes.
Danny Dartnaill, Neville Side and James Stephen, all of BDO, were appointed joint administrators on July 26.
BDO said the trade and assets of the company were sold to THG “for an amount which exceeds the value that is likely would have been realised had the company ceased trading and the remaining assets (including intellectual property) sold subsequent to a winding up process”.
THG paid £1,485,398 for City AM’s goodwill and intellectual property, £14,600 for its plant and machinery and £1 each for its business records and stock.
How much City AM owed to its creditors According to BDO’s document, Metro Bank was owed £753,384 when City AM entered administration.
The administrators have said that, based on current information, both Metro Bank will receive between 44p and 75p in the Pound.
SME Invoice Finance (SMEIF) was also owed £328,147 and is expected to receive all its money back.
HMRC was also owed around £677,000 and is also expected to receive all its money back.
According to a statement of affairs document, there are claims of £2.047m from unsecured creditors to date while the joint administrators have received claims of £2.364m.
BDO said that additional claims are expected to receive but added that, based on current information, “it is not anticipated that there will be sufficient funds to enable a dividend to be payable to unsecured creditors other than by virtue of the prescribed part.”
THG statement In response to the publication of BDO’s document, THG said: “THG is delighted to ensure the continuation of City AM as one of the UK’s key independent press titles and, in doing so, retaining the paper’s staff and a great brand.
“Our intention remains to champion UK business and entrepreneurship, whilst further building the already well-developed lifestyle and wellness offerings.
“We believe we can leverage our strengths in technology, digital commerce and consumer brand building to expand City AM’s reach over time.”