I used to think that stress was for wimps. How wrong I was. I had enjoyed a fast-paced, demanding career. I thought I could cope with anything. The truly shattering aspect of the collapse of Patisserie Valerie was that it happened so suddenly. With many corporate failures — the demise of Debenhams, or the decline of Thomas Cook — you could see them coming.
At Patisserie Valerie the downfall was horribly rapid and unexpected. So stress hit me suddenly and acutely. I was 57 and not prepared for the shock of it. I couldn’t sleep, I struggled to concentrate, I stopped exercising. Everything appeared to be spiralling downwards.
On October 9 last year, I went to work as usual and found myself walking into what felt like a nightmare parallel universe. That morning, Paul May, chief executive of Patisserie Holdings, the AIM-listed chain of cake shops where I was chairman and biggest shareholder, told me our bank accounts had been frozen. We’d thought we had £28.8m of cash in the bank. In fact, we had almost £10m of debt, with £9.7m drawn down on two secret overdrafts.
It seemed inconceivable. How could the bank balances not be there? What had happened to the money?
Patisserie Holdings was a highly successful business. It was distinctive, didn’t have a direct rival, and was tapping into the growth of the coffee shop market that had seen companies such as Costa and Greggs do incredibly well. Over the 4½ years we were public, at least eight analysts wrote about us — all positive “buy” notes. The shares had risen from 170p to 429.5p, valuing the company at £446m and my 37% stake at £160m.
The hospitality industry had become tougher — the national living wage had been introduced, there was more competition, ingredient cost inflation, business rates had increased — but our numbers appeared to show that our business was resilient. I received solid weekly numbers, comprehensive monthly management accounts, and, of course, annual accounts that were given a clean bill of health by our auditors. If ever there were queries, I got satisfactory answers.
The conversation with Paul left me in a state of profound shock. In business, as in life, there are certain documents and facts you rely on. They might be audited accounts, bank balances, a passport or a qualification. If these are fake, you wonder what is real and what is not. It was apparent that matters had gone awry, and we had to try to fix them — but we were battling against the clock.
The following morning we announced to the stock market that we had discovered what appeared to be a serious fraud, and our shares were suspended. Chris Marsh, the finance director, was also suspended. Two days later, he was arrested and by the end of October he had resigned. At our invitation, the Serious Fraud Office opened an investigation. We faced a crisis of frozen bank accounts, a winding-up petition, and huge arrears to creditors — all unearthed in 48 hours.
I’ve made money over the decades in the restaurant trade: Pizza Express, Giraffe, Strada and others. I came across Patisserie Valerie when it was brought to me by a property agent in 2006. It was an under-exploited brand with real heritage. I felt it satisfied a gap in the market — no one else was then offering cakes and patisserie on a national basis.
The core range — coffee, tea, cakes and pastries — was high-margin, and the business was “vertically integrated” (it made all the products it sold) so it could capture all the profits. I saw the potential to replicate it as we did with Pizza Express.
At the time, the company was run by the Scalzo brothers — Enzo, Robert and Victor — veterans of the catering trade who wanted to cash out. I bought a majority stake in a business with six branches at a £6m valuation.
I recruited Paul and Chris to work full-time. I’d worked with them as an investor and chairman at Cash a Cheque, where they were also chief executive and finance director. We sold that for a decent return to a publicly traded American company, where I subsequently served as a non-executive director.
We made a number of acquisitions with Patisserie Holdings and opened new branches. It appeared a sound formula and had lots of room for growth, so we floated it on AIM in 2014. I retained the substantial majority of my stake because I believed in the company’s prospects. By the time the shares were suspended, the business had 206 outlets, sales of about £114m and underlying earnings of more than £25m — or so I believed.
I wasn’t the dominant force in the business. I have always felt that if you are part-time chairman then you mustn’t interfere excessively with the day-to-day running of a business. That undermines the full-time leadership and is a certain way to demotivate ambitious, entrepreneurial bosses. But when it came to big issues such as agreeing new sites, capital expenditure, making appointments, raising capital, investor relations, making acquisitions, I’d get involved.
We appointed Grant Thornton as auditor early on, even though we were a small business, because having a top-six firm seemed to me a worthwhile investment — even if the fees were higher. One of the most astonishing aspects of the entire episode is the way in which it seems such an eminent firm had the wool pulled very comprehensively over its eyes. They never raised any material issues about the quality of our accounts.
On October 12 — four days after discovering the fraud — I managed to raise £15.7m from a loyal band of institutional shareholders, including Hargreave Hale and Schroders.
I also lent the company £10m. I really believed there was more than a chance of rescuing Patisserie Holdings — that with the new capital, it would survive.
We explored a company voluntary arrangement, but the pressure to move quickly because of the banks, HMRC and creditors made it impossible.
There were holes in the management team, and reconstructing the numbers so they began to make sense was a colossal problem. What amplified all this, I’m afraid to say, was the AIM team from the stock exchange insisting on almost daily announcements of every painful aspect of the debacle, which kept the story alive. If you’re a public company, you fall apart in public.
If I was arrogant at times before, my ego has taken quite a battering since. A very public disaster such as this shatters your self-belief. You think you’re constructing a reasonably well-ordered life, and then in a matter of a couple of days it all starts to unravel.
Added to my severe feeling of betrayal was a fear that I would become a pariah in the business world. The stress made me physically ill — I suffered a series of debilitating infections and was on antibiotics for weeks. I had chronic insomnia and felt exhausted and despairing. I rarely ventured out — I had a paranoid sense that people would be staring at me, someone at the centre of a financial scandal whose picture they’d seen in the papers.
Journalists camped outside my office and the home I share with my wife, Liza, and our three children. We had to sneak out to avoid being chased down the street. My teenage daughter suffered at school because her friends had read the newspapers. I felt ashamed that I had brought such difficulties upon my family.
Of course, I was far from the only one who had suffered: staff lost their jobs, and suppliers and investors lost money. The whole episode was a business tragedy. A number of us tried to save the company, but in the end the problems were too deep.
At least a large proportion of the sites were sold successfully as a going concern, partly thanks to a £3m injection I made to pay salaries to keep branches trading while the business was transferred to new owners.
Patisserie Holdings crashed into administration in January. That was the worst moment because I felt it had been a double disaster. I was very depressed and began to think that my career in this country was over — that I should emigrate.
For the best part of six months I could think of nothing but the Patisserie Holdings crisis, more or less all my waking hours, reflecting back on events — on many moments when I was told untrue things by people I trusted.
I may well be a witness in a serious criminal investigation, so I can provide only a fraction of the information I would like to share. I must not prejudice any future trial.
I hope I am wiser after this awful experience. Several industrialists and entrepreneurs have said to me: “There but for the grace of God . . .” In business, we rely on honesty from those around us and systems designed to prevent misbehaviour. Yet serious frauds still happen — Barings and Madoff, and many others. Business is rarely easy — after all, most companies fail, and very few grow to any real size.
All entrepreneurs who’ve built substantial companies realise it takes skill and luck to do well; such individuals take big risks, very often lose money, and occasionally go bankrupt.
But as long as these failures are honest, then the entrepreneurs involved should not be shunned. If you don’t have risk-takers innovating — and sometimes failing — then wealth generation and job creation will disappear. My heart goes out to people like Jamie Oliver. Without them, we would ossify as a society.
It’s taken me almost nine months to come to terms with what happened. I know that I was not dishonest. I was unaware of fraud. My life will always be influenced by Patisserie Holdings, but does that mean I should give up my 35-year career in business? I don’t think so.
I still have a contribution to make. I remain involved with some other very successful businesses such as Gail’s, Brompton bicycles and others.
I do not think it is productive to bury yourself in blame for the rest of your life. For all these reasons, I will also resume my column in this newspaper from next Sunday. I look forward to getting to know you all again.