Consumer Sector Comment – June 2011

Date

It has been a busy month in the UK consumer sector, especially in retail. On one hand there has been an increase of corporate’s interest in quality assets and, on the other hand, the announcement of a series of big names falling into difficulties.

The return of corporates’ interest in quality assets is now clear and evidenced in this month’s sale of Kurt Geiger to Jones Group, Schuh Group to Genesco Inc as well as Sprinter to JD Sports. These demonstrate a trend in the sector of trade buyer’s appetite for brands with real international roll-out potential or businesses with solid growth plans that have enjoyed significant market share gain over the last few years.

At the same time, the struggles of TJ Hughes, Jane Norman, Habitat and Homeform indicate that no retailer is immune to the problems facing the high street. A combination of high rents and sluggish sales, coupled in some cases with high leverage, was one of the reasons for these retailers going into administration.

Despite the highly competitive marketplace and current tough market conditions, retailers such as John Lewis, Marks & Spencer, Next and others are holding their own. Kurt Geiger, JD Sports, Mamas & Papas and many others have recently announced their plans of exploring overseas opportunities. It is time to change. Businesses that are not developing their business model to fit with the consumers needs and looking to the international market are definitely a step behind.

Clearwater has a unique position as a leading cross-border M&A advisor. If you are interest in finding out more about Clearwater’s views on what national and international investors are looking for in this sector, how your business will be valued and how to manage a process to achieve the right result, do contact us to arrange a confidential meeting.

Deals

The Hut Group Limited, the online retailer headquartered in the UK, has acquired Cend Limited which operates through its website myprotein, an online provider of nutritional supplements based in the UK, from Oliver Cookson, a private investor, for an estimated value of £58 million. The transaction broadens the Health & Beauty portfolio of Hut and is in line with its strategy to operate multi branded websites focused on selling fast moving consumer goods. Myprotein will benefit from Hut’s technology platform and customer database. Oliver Cookson, former CEO of Cend will join The Hut’s Board of Directors.

Kurt Geiger Limited, a fashion retailer of footwear based in the UK, has been acquired by The Jones Group Inc, a listed company based in the US engaged in the design and market of branded apparel, footwear and accessories, for an enterprise value of £ 215 million, from Graphite Capital Management LLP, a private equity company based in the UK. As a part of the transaction, the Jones Group will also assume Kurt Geiger’s debt obligations of around £ 121 million. The consideration will be discharged by paying £ 83 million in cash and the remaining £ 11 million by issuing 5 per cent loan notes. The purchase will help Jones Group to strengthen its presence in Europe by expanding its portfolio offerings. After the completion of the deal, Neil Clifford, Rebecca Farrar Hockley and Dale Christilaw will continue as CEO, Buying and Creative Director and Finance Director of Kurt Geiger respectively.

WM Morrison Supermarkets Plc, the listed operator of retail supermarket stores based in the UK, has acquired FlowerWorld Ltd, a wholesaler of flowers and plants based in the UK, for approximately £ 5 million. The purchase is in line with Morrison’s vertical integration strategy and will enable the company to continue to improve its flowers quality and freshness. The management and staff of FlowerWorld will join Morrison’s family.

Provexis Plc, the listed UK-based company that discovers, develops and licenses scientifically-proven technologies for the global functional food, medical food and dietary supplement sectors, has acquired Science in Sport (SIS) Limited, a manufacturer of sports nutrition products headquartered in the UK for £8 million. The purchase will combine SiS’s sports products with the Provexis’s product and development pipeline, commercial infrastructure and expertise.

Encore Tickets Limited, a theatre ticketing agent for the tourism and hospitality industry based in the UK and a portfolio company of Livingbridge, has acquired West End Theatre Bookings Limited, a ticket agent based in the UK, from Holidaybreak Plc, a listed provider of worldwide educational and activity trips based in the UK, for £ 10.9 million. The transaction was in line with Holidaybreak strategy to strengthen the education share of the group and become the leading educational travel provider in Europe.

JD Sports Fashion Plc, the listed retailer of sports clothing and accessories, has been involved in two transactions. It has acquired eight Cecil Gee branded stores for £ 1.7 million from Moss Bros Group Plc, the listed fashion retailer based in the UK, as well as a 50.1 per cent stake in Sprinter Megacentros Del Deporte, a retailer of sports footwear, apparel, accessories, and equipment based in Spain for € 20 million (approximately £ 17.6 million) from Bernad and Segarra families. The acquisitions will enhance JD Sports Fashion Plc’s European retail presence and expand its portfolio of premium brands.

Genesco Inc, a retailer of footwear, headwear, sports apparel and accessories based in the US, has acquired Schuh Group, a retailer of casual and athletic footwear headquartered in the UK for £ 100 million subject to closing adjustments, less £ 29.5 million outstanding under existing Schuh credit facilities, which remain in place. The acquisition will provide Genesco with an immediate and established retail presence in the UK, a highly experienced international management team, and improved insight into global fashion trends. The combined businesses will benefit from significant merchandising synergies and from many opportunities to share best practices. Colin Temple and Mark Crutchley, Managing Director and Finance Director of Schuh respectively, will continue in their current positions.

Belstaff International Ltd, a manufacturer of sportswear based in the UK, has been acquired by Labelux Group GmbH, a holding company of luxury goods based in Switzerland, from Clothing Company Spa, an Italian-based retailer, for an undisclosed value.

Home Retail Group, a home, garden and DIY retailer based in the UK, has acquired Habitat, a retailer of home furniture based in the UK, for £ 24.5 million from its administrators. Home Retail Group has purchased the rights for the exclusive use of the Habitat brand, its brand designs and intellectual property in the UK and Ireland. Additionally, it is also acquiring the Habitat UK website, three of its London stores and certain brand support functions.

Hilco UK, a retail restructuring specialist based in the UK, has acquired HMV Canada business from HMV Group plc, a retailer of entertainment and book headquartered in the UK, for £ 2.05 million. Hilco UK will also provide HMV Canada with working capital of up to $25 million to fund the Canadian management team’s plans for the continued growth of its business.

Town & City Pub Group Ltd, a pub operator based in the UK, has been acquired by Stonegate Pub Company Ltd, a pub operator based in the UK with TDR Capital as the majority owner, for an undisclosed value. The merger creates the largest private pub operator in the UK. After the completion of the transaction, Town & City will operate under the Stonegate banner.