Vasanta #1

Vasanta has been in trouble for some months. Today's newspapers - both The Sunday Times and The Sunday Telegraph - carry stories saying that PWC has been lined up to act as the firm's administrator as a direct consequence of the withdrawal of credit insurance to key suppliers to the group.

Vasanta was created as a result of the 2007 merger of two of the UK's largest office supplies wholesalers - Kingfield Heath and ISA. It is understood that the primary rationale for this merger was based on the simple premise that scale is key in the wholesale distribution business. In principle, very sound business sense. Unfortunately, two other factors are also critical - compatibility and timing. The cultural differences between the two firms were well understood at the time - one a lean specialist, the other, a somewhat head-count heavy generalist. But back in 2007, no one could have predicted the seriousness of the current economic malaise.

In May of this year, Vasanta's owners - Electra Private Equity - made it clear that the firm was in trouble. In it's half year announcement, Electra said that it was writing down its carrying value in Vasanta by 95%, explaining that the removal of credit insurance had led to a significant increase in the company's debt levels. At that time, Reuters reported that Electra still 'believed' in Vasanta as an investment, stating that the company 'expected to reach a successful conclusion to current discussions with its banking syndicate, such that Vasanta will not report a breach of covenants'. Clearly, some few weeks further down the line, this has simply not happened.