Consumer sector comment – March 2010

Date

This month’s M&A news shows an encouraging proportion of value rather than distressed deals in the sector, confirming our view that there are signs of a return to the market of PE and public investor money.

Whereas for the whole of 2009, there were only a handful of non-distressed private equity deals such as the Blue Banana, Modelzone and Bounty deals, we have this month seen home-grown retail brands Cath Kidston and Weird Fish raise private equity funding to support cash-out deals for the owners and investment for the businesses. SuperGroup, shunning the PE route, pressed ahead with its debut to the main market, raising £125 million, with a strong performance since float.

We still expect to see more distressed deals, such as the Nicole Farhi and Adili disposals announced this month. With consumers becoming increasingly savvy on where to shop and so with much choice out there, they have become demanding of retailers who can’t afford to make mistakes with any aspect of the overall consumer experience. Despite the PR, banking facilities remain tight and difficult to obtain. There will be real winners and losers this year, including attractive buying opportunities for stronger businesses.

We continue to be firm advocates of multi channel and e-commerce retail and are planning seminars on both topics during May in Birmingham and London. Contact us for more details.

Deals

Supergroup, the fashion label, has raised £125 million through its IPO, giving it a debut market capitalisation of £395m. The group, which owns the Cult clothing chain and the fashion label Superdry, raised £120m from institutions and £5m from retail investors. Founded in 1985 by founder and chief executive Julian Dunkerton, who began trading from a market stall, the group now operates a multichannel business and currently has 39 shops in the UK and Ireland plus a further 54 concessions within House of Fraser stores. Internationally the Superdry clothing brand is sold in over 20 countries with franchised and licensed outlets in Belgium, France, Scandinavia, the US and Australia. The management team will receive £105 million of the proceeds with £50 million going to Julian Dunkerton.

Cath Kidston, the vintage inspired fabric, clothing, accessories and homes wares retailer, has sold a 60% stake in the business to private equity house, TA Associates. Lloyds Banking Group is providing a debt package of £25 million with the overall deal value reported to be around £100 million. The company, founded in 1993 by Cath Kidston, currently has 28 shops and concessions in the UK, two shops in the Republic of Ireland and five in Japan and plans to open further shops both in the UK and internationally.

Net-a-Porter, the Internet-based fashion retailer, is to be bought by Swiss luxury-products company Richemont in a deal worth £350 million. Natalie Massenet, the founder of the London-based business, is expected to make £50 million or more from the deal. She owned an approximate 18% stake in the business. Richemont, who already had a significant minority stake in Net-a-Porter, owns several leading luxury good brands, with particular strengths in jewellery, luxury watches and writing instruments, such as Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC, Panerai and Montblanc.

French Connection Group plc has sold the Nicole Farhi brand to Opengate Capital for a consideration of up to £5 million, after carrying out a strategic review which will also result in the closure of its under-performing US retail stores having already announced its exit from the Japanese market. This will leave the group to focus on its remaining fashion brands, which are French Connection, Toast and Great Plains.

Adili, the online ethical clothing business, trading as Ascension and headquartered in Dorset, has been sold for £1 to dotcom entrepreneur Luke Heron to further expand his ethical clothing group which includes ethical brand Green Baby.

Autoquake Ltd, the London-based operator of the Autoquake.com online portal for used car sales, has raised a funding package of £6 million, from existing equity investors Accel Partners and Highland Capital Partners, while debt is being provided by Kreos Capital. The funding will be used to develop new UK distribution centres and to expand internationally.

Pavers Shoes has acquired shoe-shop.com Ltd, a UK-based online shoe retailer. Pavers, founded in 1971 and with sales in excess of £50m, has 100 plus outlets in the UK, including high street shops, discount concessions and designer outlets. It sells a wide range of well known brands such as CAT, Hush Puppies, Timberland, Merrell, Flyflot, Padders, Equity and Clarks and has also created an own label range. Shoe-shop.com, founded in 1999 by the son of Pavers’ founder, Catherine Paver and also headquartered in York, is now a £10 million turnover business selling a multitude of brands. The central operations of the two businesses will be based at Pavers Shoes state-of-the-art 90,000 sq ft head office and distribution centre in Poppleton, York.

Elite Creations has acquired Phase Two Accessories of London for an undisclosed amount, shortly after completing its management buy-out last month backed by HSBC Bank. Elite Creation is one of Europe’s leading suppliers and distributors of fast fashion accessories and supplies more than 30 UK retail groups, as well as exporting to customers in Spain, Germany, Scandinavia and the Middle East. Phase Two, which will add a further £5 million of sales to Elite Creations existing circa £20 million annual turnover, supplies handbags to UK mid-market retailers.

BTC Activewear, the clothing distributor to the promotions, merchandising and imprint industry, has merged with the Falk & Ross Group Europe GmbH, its largest European competitor. BTC, based in Wednesbury, employs 116 staff and has annual sales of £28 million. Falk & Ross, headquartered in Sembach, and backed by German venture capitalist Steadfast Capital, already has established subsidiaries in Spain, Belgium, France, Austria, Poland and Italy. This deal provides the group with an entry into the UK market.

Weird Fish, the Cheltenham-based fashion company, has been sold for £8 million to a management buy-out team, led by Managing Director John Stockton, and backed by Piper Private Equity. Founded in 1993 by Douglas and Frances Tilling, the company currently has 12 dedicated stores as part of his multi-channel offering.