THE struggling home-furnishings chain MFI is considering a merger with its British rival Homeform, which operates the Moben Kitchens brand.

The deal would create a combined company with 360 stores employing more than 5,000 people.

The move comes less than two years after MFI was rescued by Merchant Equity Partners (MEP) for just £1. It has since been faced with challenging markets and has been looking for a partner for several months.

Homeform is owned by Sun European, which also owns SCS Upholstery, a furniture business it recently bought out of administration.

MEP, together with its backer Hilco, the retail-turnround specialist, and investment bank Goldman Sachs, are exploring potential business combinations for MFI as well as the possibility of further investment.

Talks have been held with Nobia, the Swedish retailer, about combining its UK business Magnet Kitchens with MFI. Discussion have also been held with several private-equity firms and hedge funds about an additional injection of cash.

An MEP spokesman told The Sunday Times: “We are happy with the operational progress we have made with MFI since we bought the business but recent market conditions have Continued on page 2 Continued from page 1 prompted us to consider our strategic options and possible business combinations.”

Confirmation that the talks are taking place follows months of speculation about the future of one of Britain’s best-known retail brands, during which time MFI’s backers have had to continually deny suggestions that the company is in trouble.

Rumours that MFI was struggling were sparked by the recent appointment of two senior Hilco directors to the board of MFI.

Further fuel was provided when Kroll Talbot Hughes, the restructuring expert, was brought on board to strengthen MFI’s “underresourced finance function”.

Despite the revelation that MFI is now considering its options and looking for additional investors, sources close to the company insist that the retailer will survive and that its original backers will continue to provide support.

MEP – which bought MFI for £1 in 2006 – is run by Henry Jackson, a former investment banker. Partners include John von Spreckelsen, former chairman of Somerfield, and David Hamid, the former chief executive of Halfords who is also chairman of MFI.

MEP raised a fund of £700m with the backing of Hilco and Goldman Sachs. MFI has had about £200m of investment from the MEP consortium and through money owed to it by MFI’s former parent company Galiform. Gary Dutton, founder of one of Britain’s biggest suppliers of window frames, doors and conservatories, could be in line for an £80m windfall after receiving several takeover approaches for his Synseal business, writes Matthew Goodman.

Dutton has appointed KPMG to carry out a strategic review of Synseal, which he set up in 1980. A sale could value the company at between £70m and £80m. The business could attract interest from both private-equity investors and trade players, although it seems likely that the latter would be the more likely type of purchaser.

However, a sale is not the only option under review, and Dutton could choose to expand by making acquisitions. Synseal generates earnings of about £10m and is understood to be debt-free.

Despite the downturn in the housing market, Synseal is said to be well insulated because it focuses on providing replacement parts rather than materials used in new homes.

Dutton opened his first showroom in Sutton-in-Ashfield, Nottinghamshire, and the business has rapidly expanded. Synseal started as a retailer but has since moved into manufacturing.

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