(Bloomberg) — Bryant Riley, the co-founder of investment firm B. Riley Financial Inc., told employees he feels “personally sick” after the collapse of Franchise Group Inc., which came a little more than a year after he helped to arrange a $2.8 billion buyout that became one of his firm’s key holdings.
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The August 2023 deal for Franchise Group, or FRG, saw B. Riley take a stake of about 31%. The Chapter 11 bankruptcy that FRG declared Sunday wiped out shareholders, leading to an impairment of $120 million for Riley’s Los Angeles-based company, after previously announced writedowns of up to $370 million, according to a statement.
“This is not the outcome we ever envisioned,” said Riley, the firm’s chairman, in an email to employees that was included in a regulatory filing. “I feel personally sick about this result.”
B. Riley’s shares tumbled 12% in New York trading. Riley is the firm’s biggest single shareholder and also described himself as “one of the most significant individual investors” in the FRG deal.
FRG Setback
FRG, which houses brands including Buddy’s Home Furnishings and the Vitamin Shoppe, will be taken over by its lenders under a plan that will see some of the business continue operations, according to a Nov. 3 statement. Still, the implosion and wipeout of the FRG stake marks a stunning reversal for Riley and the company he helped launch, along with his onetime close friend and business partner: ex-FRG chief executive Brian Kahn.
Kahn was another key figure who helped push through last year’s deal to take FRG private. The investment was tipped into turmoil just months later, when Kahn was forced to step down amid a US criminal investigation into his role in the collapse of hedge fund Prophecy Asset Management. Kahn has categorically denied wrongdoing or any knowledge of misdeeds by the managers of Prophecy, and said he was among those who were defrauded as a result of Prophecy’s demise.
FRG’s businesses failed to perform as expected since the deal. This created what Riley described as a “confluence of events” that “derailed our original investment thesis.”
“The investment was devastated by the precipitous decline in consumer spending in the markets served by the FRG brands, and the fallout and uncertainty from the Prophecy scandal and the related federal investigation into Brian Kahn,” Riley said.
