Phones4U founder in line for second windfall

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Retailer Phones4U has been sold in a deal thought to be worth up to £700m that will trigger a second payout for founder John Caudwell.

The company, which has more than 500 stores in the UK and employs about 6,000 staff, is to be snapped up by BC Partners, owners of gym company Fitness First.

Phones4U, which is based in Staffordshire, reported a 20 per cent increase in sales to £900m in 2010. It is mainly owned by US-based investor Providence Equity, although Mr Caudwell and the management team still hold a 25 per cent stake.

The deal, which is believed to be worth between £600m and £700m, comes a few months after Providence snubbed several offers and said it wanted to continue to own the company.

The sale will net Mr Caudwell a further windfall in addition to the £1.46bn he made by selling 75 per cent of the company and his 20:20 distribution arm to Providence in 2006.

Andrew Newington, managing partner at BC Partners, said Phones4U’s strong brand and extensive store network meant it was well positioned to benefit from further strong growth in the smartphone market.

Phones4U claims to sell one in every four contract smartphones on the high street and said its advertising campaigns and marketing on social network sites helps it connect with the hard-to-reach youth market.

The company last year unveiled a deal with Currys owner DSG International to open branded Phones4U at Currys outlets in at least 50 stores after trials in megastores at Birmingham, Thurrock, Hedge End, Merry Hill and Stevenage.

Providence recently said Phones4U was expected to generate underlying earnings of £130m in 2010, up 23 per cent on the previous year, although it holds debts of £300m.

The group began as Midlands Mobile Phones in 1987 when Mr Caudwell bought 26 phones from the US for more than £1,000 each and sold them on in the UK.

He sold the company in 2006 to Providence in a deal that included the disposal of 20:20 to UK-based private equity firm Doughty Hanson.

BC Partners, owner of Fitness First gyms and Turkish supermarket Migros, recently raised e4bn towards its latest buyout fund, sources familiar with that situation said.