Cazoo has entered administration, a mere three years after its ambitious $8 billion flotation in New York.
The used car enterprise, launched by Zoopla’s founder Alex Chesterman, had been seeking protection from creditors earlier this month and cautioned shareholders about the impending need to file for administration. Restructuring advisers from Teneo have now been appointed to manage the insolvency.
Founded by Chesterman after his successes with Zoopla and LoveFilm, Cazoo started as an online retailer and supplier of used cars. Recently, however, it shifted to an advertising marketplace model akin to Auto Trader. This pivot came too late to save the business from its financial woes.
Since its inception in 2018, Cazoo expanded swiftly, pouring substantial investment into marketing, including high-profile sponsorships of cricket, rugby, snooker, and golf. Despite this aggressive growth strategy, the company consistently failed to turn a profit, reporting pre-tax losses of £531.5 million in 2021 and £525.5 million in 2022. These financial struggles necessitated significant job cuts and a retreat from operations in Germany, France, and Italy.
Recently, Cazoo sold off its wholesale division, vehicle repair centre, and customer collection centres, which bolstered its cash reserves to over £98 million as of May 13. Nonetheless, the shift to an advertising model resulted in 728 job losses.
In the announcement of Cazoo’s administration, Teneo revealed that nearly 100 car dealers had shown interest in trading on its marketing platform. Teneo plans to continue marketing Cazoo’s marketplace business, aiming to secure a sale in the coming weeks. Currently, Cazoo retains about 200 employees.
Matt Mawhinney, joint administrator at Teneo, stated, “Following Cazoo’s decision to pivot to a marketplace model, the group has been winding down its legacy operations and sold a substantial number of its businesses and assets. These sales have generated additional value for creditors, preserved a significant number of jobs, and ensured that leases have been transferred to new operators to mitigate losses to landlords.”
Chesterman’s stake in Cazoo was significantly diminished last year when the company undertook a debt-for-equity swap involving $630 million in bonds, ceding majority control to Viking Global Investors, a US hedge fund.
Cazoo’s downfall occurs amidst a trend of London Stock Exchange-listed companies seeking US listings for better valuations. Critics argue that investors in the City of London are overly cautious and fail to support entrepreneurial ventures. Tom Blomfield, former CEO of Monzo, noted last year that the UK was “not always favourable to ambitious founders who want to do something unusual,” leading him to relocate to San Francisco to invest in early-stage tech companies.
However, forecasts from UBS and HSBC suggest optimism for UK equities this year. UBS anticipates that a global manufacturing sector revival will benefit the London market due to its energy and commodities exposure. HSBC points out that UK pension funds have ceased selling UK stocks after withdrawing nearly £2 trillion from the market over the past three decades.
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