Yahoo Finance Used car retailer Cazoo seeks cash lifeline to escape insolvency
The troubled used car supermarket Cazoo is scrambling for a lifeline as it sinks further into a funding crisis.
The online dealer hopes to persuade shareholders to agree to an urgent cash injection but is preparing contingency measures. A source involved in the discussions said all options are on the table, including new investors, a sale or break-up of the company, and asset sales.
However, if fresh funds can’t be found then it will be forced to consider administration. A team of restructuring and insolvency experts is being called in to navigate the crisis.
Cazoo revealed in December that it could run out of capital by the middle of this year. The crunch is looming after years of heavy losses and amid a sharp downturn in the second hand car market.
It is the latest setback for a company that its outspoken founder Alex Chesterman claimed was primed to shake-up an industry he accused of being stuck in the past.
It floated on the New York stock exchange in 2021, just three years after its inception, but instead of the runaway success that Chesterman envisaged, it has lurched from one crisis to another.
In December, despite sweeping cost cuts, Cazoo was forced into a controversial debt for equity swap that secured its future but inflicted heavy losses on existing shareholders.
The deal handed control to a group of bondholders led by American hedge fund Viking Investors, who forgave $630m of debt in return and agreed to provide $200m of new borrowings.
Those still holding the shares were left with a combined equity stake of just 8pc in a company whose value had collapsed by 99pc. At the same time, Chesterman stood down from the board along with four other directors.
Just days later, however, Cazoo stunned the stock market with a bombshell announcement that it was facing a cash crunch.
The company warned that it was in danger of running out of funding in the first six months of 2024 unless it succeeded in raising additional capital. It said it expected to end the year with a cash pile of between £100m and £115m, and an additional £20m to £30m worth of cars in stock.
However, the company cautioned it was burning through £30m to £40m every quarter, and restrictions on its lending agreements meant it had to maintain a cash cushion of £50m, starting from the beginning of the year.
“If we are unable to obtain adequate financing…our ability to continue as a going concern…could be significantly limited, and this could have a material adverse effect on our business, financial condition, results of operations and prospects,” it said in a filing with US regulators.
Cazoo’s Wall Street listing valued it at $8bn, catapulting Chesterman into the ranks of the super-rich and crystallising a big payday for other key backers, which included the publisher of The Daily Mail.
Chesterman ruffled industry feathers in a newspaper interview in which he called the traditional method of selling cars “flawed on every level”.
Cazoo spent tens of millions of pounds a year on sport sponsorship deals and advertising in a bid to boost its profile as management drew up ambitious plans to conquer Europe.
Its name ended up on at least nine football clubs, including those of Premier League stalwarts Everton and Aston Villa, as well as Spanish clubs Valencia and Real Sociedad, French giants Olympique de Marseille, and Germany’s SC Freiburg.
It also became a main sponsor of the St Leger Stakes horse race, the Hundred cricket tournament, the Rugby League World Cup, the World Snooker Tour and the PDC World Darts Championship.
The company’s marketing spend topped £45m in the first six months of 2022 alone but by the second half of the year, the budget was being reined in as Cazoo’s fortunes nosedived, forcing it to undertake swingeing cost cuts.
Cazoo has withdrawn from Europe, where it had expanded into a slew of countries, closed two in three of its UK handover centres where customers collect their cars, slashed its transporter fleet by a fifth, and cut hundreds of jobs.
However, it has not been enough to save its share price or put it on a profitable footing. Total losses at the end of June last year stood at £1.4bn.
Meanwhile, its market cap had crashed to just $38m at the time of a one-for-100 reverse stock split that accompanied its debt restructuring agreement with lenders.
A Cazoo spokesman said: “Cazoo does not comment on market rumours but…as we have made clear in our SEC filings, we have commenced an evaluation of potential partnerships, synergies, mergers, acquisitions, joint ventures and sales in the light of our improved capital structure.”
