(Bloomberg) — Bryant Riley, the co-founder of investment firm B. Riley Financial Inc., told employees he feels “personally sick” following the collapse of Franchise Group Inc. just over a year after he helped to to arrange a $2.8 billion buyout that became one of his company’s most important assets.
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The August 2023 deal for Franchise Group, or FRG, saw B. Riley take a roughly 31% stake. The Chapter 11 bankruptcy that FRG declared on Sunday has wiped out shareholders, leading to a $120 million impairment charge for Riley’s Los Angeles-based company, according to a statement, following previously announced writedowns of up to $370 million.
“This is not the outcome we ever envisioned,” Riley, the company’s chairman, said in an email to employees included in a regulatory filing. “I personally feel sick about this result.”
Shares of B. Riley fell 12% in New York trading. Riley is the company’s largest individual shareholder and also described himself as “one of the key individual investors” in the BRD deal.
FRG setback
FRG, home to brands such as Buddy’s Home Furnishings and the Vitamin Shoppe, will be acquired by its lenders under a plan that will continue some of its operations, according to a Nov. 3 statement. Still, the implosion and destruction of FRG stock marks a stunning turnaround for Riley and the company he helped launch, along with his former close friend and business partner: ex-FRG CEO Brian Kahn.
Kahn was another key figure who helped push through the deal to take the FRG private last year. The investment was thrown into turmoil just months later, when Kahn was forced to resign amid a U.S. criminal investigation into his role in the collapse of hedge fund Prophecy Asset Management. Kahn has categorically denied wrongdoing or any knowledge of wrongdoing by Prophecy’s managers, saying he was among those defrauded as a result of Prophecy’s demise.
Since the deal, FRG’s operations have not performed as expected. 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 FRG brands, and the fallout and uncertainty of the Prophecy scandal and related federal investigation into Brian Kahn,” Riley said.
