The web of financial ties and interests that connect the Franchise Group, B. Riley, Conn’s and Badcock is thick and, like a spider web, somewhat circular in nature. The money seems to go around and around and around. Even after the Conn’s bankruptcy filed Wednesday, it’s still going around.
These crisscrossing silken strands lead to questions that even a close reading of the 248-page filing can’t answer. One qualifier: I’m not an accountant or a lawyer; I don’t even play one on TV. Like many of you, I’m simply trying to make sense of things.
Let’s get right to the questions.
Question 1: Still at the center of my cork board is why FRG would acquire Badcock for $580 million in November 2021 only to dump it two years later for 1 million shares in Conn’s, shares that were slipping in value well before the deal? At the time of the Badcock acquisition by Conn’s for the preferred stock, the Conn’s share price was about $4.70. Last week, upon filing for bankruptcy, it had dropped to between 35 and 40 cents, leaving FRG with precious little to justify the sale. Even when accounting for FRG’s sale of Badcock distribution centers and the $94 million in sale-leasebacks of the 35 company-owned stores, the deal doesn’t make much sense, at least to me.
Question 2: Knowing what it knew at the time of the transaction, why did B. Riley Financial loan Conn’s roughly $100 million as part of the deal, according to the bankruptcy filing? Granted, that loan is secured, making B. Riley only one of three secured creditors in the filing. JP Morgan and the Stephens Group are the other two. B. Riley entered into the security agreement with Conn’s after seemingly spurring FRG’s Badcock sale in the first place by refusing to buy yet more Badcock receivables from FRG. More on that in a minute.
Question 3: Conn’s hired B. Riley Financial as consultants. Among the recommendations that B. Riley presumably made or at least supported, given the events that followed, were that Conn’s should file for bankruptcy and that as a part of that bankruptcy Conn’s should contract B. Riley Retail Solutions/Great American Group to conduct the GOB sales for all 553 stores and e-commerce operations. While it might be perfectly legal, how can one division of a firm get paid to consult, then funnel business to another division, while at the very same time be an investor in the business it is consulting and, per that consult, liquidating into nothing? Around and around it goes.
Question 4: B. Riley invested in FRG when it launched in June 2019, and BRF partnered with the management team to take it private to the tune of $281 million in August 2023. BRF advised on the sale-leasebacks of the Badcock stores and distribution centers. BRF agreed to buy $400 million of Badcock’s receivables and to take on even more in receivables to enable FRG’s acquisition of Badcock. Later that same year, citing Badcock’s “deteriorating outlook,” BRF changed direction, saying it had no more appetite for the receivables. Knowing that it is the selling of these customer receivables that is in the DNA of the business models of both Conn’s and Badcock, and circling back to the hiring of BRF to consult on a plan forward, how could BRF reasonably advise given what at least appear to be profound conflicts of interest? I’m not questioning the legality of it; I am wondering about efficacy from a shareholder point of view.
Question 5: How is it that Conn’s executives failed to anticipate and, therefore, adequately plan for the end of Covid stimulus payments, the higher cost of money because of rising interest rates, and complications integrating the Badcock operation? These were the three main reasons for bankruptcy as presented in the filing. The payments quite obviously were going to end. The interest rate hikes levied to tame inflation took place over a period of months, even years, with most of them in place before the Badcock acquisition. And the Badcock business model, its roster of vendors, financing plans, IT systems and employee compensation packages all are different from those of Conn’s, different enough to make integration at least less than seamless. With a network of loyal franchisees, the franchisor should have been ahead of these sorts of fundamentals as part of the fiscal, operational and managerial responsibility of that franchisor, right?
Question 6: On page 22 of the filing, Conn’s states that in December 2023, or the time of the Badcock acquisition, “having identified a need for additional liquidity, the company attempted to secure additional financing to address liquidity needs. Ultimately, however, those transaction[s] were not able to be consummated.”
So, at the time of the acquisition in December, a deal for which the secured loan agreements were re-negotiated, Conn’s knows it needs additional cash? A lot of additional cash? If JP Morgan, BRF and the Stephens Group knew of this need, how could the deal go forward?
Question 7: Related to the previous two questions, I can’t help but ponder just how “extensive” the attempts to find a buyer for even part of the business were, despite the statements in Conn’s President and CEO Norman Miller’s supporting declaration asserting that those attempts were, in fact, quite “extensive.” It’s a subjective term, so I’m not accusing anyone of deception, but, like many, I can’t help but wonder whether at least Badcock could have been saved. (And there’s still time all you white knights out there!)
Adding to my curiosity on this front is the whiplash speed with which GOB signage went up in the chain’s stores. For the local Badcock here in Rome, Georgia, the operators tell me they were alerted of the bankruptcy on Tuesday, the day before the hearing, and that a representative of Great American was in the store Thursday to deliver the GOB signs. B. Riley Retail Solutions issued a press release announcing the GOB sales less than two hours following the bankruptcy hearing Wednesday, or faster than it takes to actually read the filing and the judge’s decision.
Question 8: After seeing its two holdings in the furniture sector go belly up, what is the appetite at the Stephens Group for involvement in home furnishings going forward? No one could blame the Little Rock, Arkansas, firm for its reluctance to grant Conn’s additional capital after having seen its other investment in the sector go so terribly awry in August last year in Mitchell Gold + Bob Williams.
Question 9: The most important question, I think, asks just what the many Badcock franchisees are supposed to do next. This is their livelihood, and they invested in a very different ethos and culture in Badcock than they ended up with in Conn’s. As the operator here in Rome said over the weekend, after loading a few 50%-off items into a customer’s car, “I grew up in this business. We don’t know what we’re going to do.”
A Badcock dealer on Waukesha Street in Bonifay, Florida, posted to Facebook that, “It’s with heavy hearts that we come to you to let you know what is going on. We want you to hear it directly from us. We found out Tuesday afternoon, after 120 years, Badcock Home Furnishings and More will be closing ALL stores. Yes EVERY store. Like you, we are shocked and overwhelmed. We feel like a family member has died. We’ve shed many, many tears over the last few days and have prayed more than we ever have.”
It is a bit like a death.
“What we didn’t know, was that Conn’s was already a sinking ship before acquiring Badcock,” the post continued. “We have thought of Badcock as the little lifeboat, floating out in the big ocean. As Conn’s sunk deeper and deeper, they grabbed ahold of Badcock, sinking the little lifeboat with the big ship. This closure is not our fault or the fault of our customers or the small towns where we are located. Our small towns have been the backbone of our businesses for 120 years. Our customers have been supportive and loyal to us, generation after generation and for that, we are extremely grateful.”
The post is signed, Kevin, Seth, Kasen and Evan.
You did a great job of laying out the facts but it still has to be the most confusing business deal ever. It never made sense to anyone with any history in the business world.
Thanks for your thoughts David! Indeed, Brian is doing a terrific job on this story!
Home News Now has done an outstanding job with coverage of this debacle – great work !
Thanks very much, Randy. I appreciate your thoughts. Brian has done a terrific job with this story!
Wow. So many years of hard-earned trust and community down the drain. It’s my hope that the Badcock Franchisees are able to federate in order to replace the loss of Badcock’s operating and financing systems. These folks have the right stuff, and they provide an important service in so many communities. Whether that’s in the form of a buying group or a partnership with a finance company, this could be a blueprint for the future. It all goes to show that the furniture business is not like Silicon Valley. The numbers are important, but the people and the trust it requires to deliver big, bulky, and breakable furniture are even more important. Here’s hoping that such a coming-together can happen.
Thanks for your feedback, Buddy! You were spot on in your comments. It is a shame to see a retailer with such an impactful history in their communities face this terrible turn of events.
Thank you for asking the questions that so many of us (Badcock dealers) are asking, questions we may never know the answers to. My husband, Kevin is the dealer of the Bonifay, FL store. We have worked together in our Badcock store for the last 32 years. My parents became dealers in 1972. I grew up in their store. Badcock is all I’ve ever known. I, too, am puzzled how quickly the GOB was on the scene. There are so many unanswered questions. Thank you for highlighting our Facebook post. This really does feel like death. We even had a customer drop off food at our store because that’s what we do in the South when a family loses a loved one. She said, “I know you have been working so much this week, I wanted to provide dinner for your family. We love y’all and are so sorry about this.” She will never know just how much her act of kindness means to our family.
I’m looking forward to the answers to your questions.
Sincerely, Robin Pemberton
Robin & Kevin we love your entire family so much & our hearts are broken for all of you. Dana & I pray for you all & we hope you feel all the prayers and love from so many people. Ya’ll have alot of people praying for ya’ll and BELIEVING God has bigger and better ahead for ya’ll. Just remember to “praise him in the hallway.”
We love ya’ll so much,
Rena & Dana