Consumer sector comment – February 2010

Date

The sale of Pets at Home to private equity investor KKR for a reported £995m – a valuation multiple of 12x on expected EBITDA to March this year, marked a spectacular return to investing in retail by the PE world.

Whilst the stock market is seemingly cautious about flotation at present, with New Look’s and Merlin’s postponed, SuperGroup however still currently proceeding with their debut £125m IPO, PE funds themselves are back in the market for new deals. Investors are keen to identify businesses that have done well in the last 18 months and therefore demonstrated a robustness and resilience. In their eyes such businesses are likely to do well over a medium term even if 2010 remains a cautious consumer market.

This is especially true in the middle market where there are clear signs of a return of M&A. Current rumours about sale processes for HobbyCraft, Cath Kidston, Card Factory, Figleaves and DFS suggest strong private equity interest. At Clearwater we have had an increasing number of approaches by PE houses looking to invest in the consumer space.

Banking appetite has gradually come back in recent months. Whilst still choosy about the deals they will finance banks, under increasing pressure to demonstrate their support for the market, are offering attractive terms to the right proposals.

There is perhaps a simple answer as to which businesses are likely to be attractive. This has been a market of real ‘winners and losers’. The last 18 months has seen premium and value end retailers; on line and main stream high street businesses doing well or doing badly. It really does come down to being a good retailer – and investors are well aware of this. They are looking for the evidence of a professional management team with a differentiated approach and ambition – or entrepreneurs with vision who have surrounded themselves with professionals.

So if you have weathered the market in the last 18 months and have a robust plan for 2010 and a medium term vision for growth, then PE investors are keen to do deals.

News stories

Halfords, the listed, UK-based bike and motor accessories retailer has acquired Nationwide Autocentres for a cash consideration of £73.2 million. Nationwide Autocentres, is the UK’s leading independent car servicing and repair operator, with 224 outlets nationally, and was owned by its management and Phoenix Private Equity, who acquired the business in a secondary buy-out in 2006 for a reported £50 million. Following the acquisition, Nationwide will be re-branded as Halfords Autocentres and it is intended to roll-out a further 200 centres, creating over 1,000 new jobs.

Elite Creations, one of Europe’s leading suppliers and distributors of fast fashion accessories, has undergone a management buy-out with funding provided by HSBC bank and HSBC Invoice Finance. Elite Creations has a turnover of up to £20m and supplies more than 30 UK retail groups, as well as exporting to customers in Spain, Germany, Scandinavia and the Middle East.

Pets at Home has been bought by KKR Capital Markets with co-investors Nomura and Calyon for a reported £995m from Bridgepoint Capital. Commerzbank provided the debt to support the deal. KKR plans to support the management team, led by CEO Matt Davies, to open 20 new stores a year as well as rolling out the chain’s new pet grooming and vetinary services to more of its stores. Based in Chester with sales last year of £404 million, it was acquired by Bridgepoint in 2004 from 3i and ICG, in a deal valued at £230 million, with this deal generating a reported exit return of 8x for Bridgepoint.

Luxury women’s shoe retailer Georgina Goodman has sold a minority stake to Core Capital for £4 million to fund the expansion of the company’s retail and wholesale operations and recruit key personnel in commercial areas. With its flagship store located on Old Bond Street, Georgina Goodman’s customers include celebrities such as Kate Moss, Kylie Minogue, Thandie Newton, Gwyneth Paltrow, Beth Ditto and Jerry Hall.

Sports Direct International, through Sports Direct.com Retail, has acquired Kaupthing Singer & Friedlander’s ( in administration ) interest in Blacks Leisure Group plc raising its interest to 28.5% and causing Blacks Leisure to delay its proposed £20 million fundraising plans.

Harry Ramsden, Britain’s best known chain of fish and chip restaurants, headquartered in Manchester, has been sold by parent company, Select Service Partner, to Mr Ranjit Boparan through his investment vehicle, Boparan Ventures. Ranjit Boparan, owner of chicken processor 2 Sisters Food Group, and who bought four FishWorks restaurants last year from administration, has announced that he intends to open a further 100 restaurants over the next 5 years creating some 600 new jobs. The deal value was not disclosed.

Visage Group, the Manchester–based private-label apparel supplier to leading high street and mass retailers in the UK, has been acquired by Li & Fung, the Hong Kong-listed consumer group, for a total consideration not exceeding £173 million. Li & Fung, which already owns Peter Black International, the UK footwear, accessories, gift and personal care merchandise supplier for leading retailers, is still looking for further acquisition opportunities after this recent purchase. The deal achieves an exit for the former Bank of Scotland Integrated Finance unit who supported a management buy-out in 2005 led by brothers-in-law Mr Raj Sehgal and Mr Sanjeev Mehan.

Trutex, the schoolwear supplier to independent retailers and schools, is reported to have been bought by turnaround private-equity house Endless via a prepack administration, with bank funding from HSBC bank. Trutex’s sales in 2009 are believed to be be GBP 17m.

Diamonds and Pearls, a UK retailer of value fashion jewellery, accessories and gifts, has been bought out of administration by Renaissance, a private-equity house. The deal involved the purchase of 48 shops. The remaining 35 shops have been closed.