Consumer Sector Comment – August 2014

Dato

The infant and baby products market continues to be attractive in M&A terms. The market offers opportunities for consolidation against a generally favourable background of overall sector stability, improving economic conditions and greater affluence among older parents and grandparents. However, the retail end of the value chain has experienced high levels of competition, in part from the internet, triggering some high profile M&A activity this month, particularly in the UK.

Last month, US retailer Destination Maternity made an opportunistic approach for UK baby retailer Mothercare. Mothercare has faced challenging market conditions, including a profits warning in January, and has been downsizing its UK estate whilst continuing to grow internationally. Destination Maternity’s bid, worth £266 million, came after two earlier bids had been rejected and appears to have been driven at least in part by tax considerations. The offer was eventually withdrawn due to the lack of support from Mothercare’s board and shareholders. Since first announcing the bid, Destination Maternity had announced its own profits warning on the back of unexpectedly weak Q3 sales. Also last month, BlueGem private equity agreed a deal with baby products brand and retailer Mamas and Papas and, in another private equity transaction, Endless acquired multi-channel retailer Kiddicare from supermarket group Morrisons. Kiddicare was sold at a reported price of £2 million, representing a write off of £163 million on investment. A key issue for Morrisons has been the development of physical stores, which had led to significant losses.

Global transaction activity in the baby and juvenile products markets also continues at a fast pace, with strategic acquirers in particular seeking to expand geographies and product portfolios as well as adding new innovative technologies. Recent deals include:

  • Hong Kong-based Goodbaby has acquired PE-backed Evenflo of the US, whose products include infant car seats, travel systems and other infant products. This acquisition came after the purchase of German child safety brand Cebex at the start of the year;
  • In a cross-border move in the opposite direction, Dorel Industries, a US juvenile products and cycle company, acquired Lerado Group, a juvenile products company based in Hong Kong, for $120 million. The acquisition will provide Dorel with its first company-owned factories in Asia;
  • Baby Jogger, a US stroller company backed by Riverside private equity, acquired NJoy, makers of an innovative reversible umbrella pushchair based in Spain;
  • Also in the pushchair space, Swedish e-commerce group CDON has acquired Britax Group’s Carena brand, via its children and baby products retail subsidiary Lekmer.

This is a space that the consumer team at Clearwater International knows well and we expect to see continuing high levels of M&A activity over the coming months.

 

UK Consumer Deals

Baring Private Equity Asia acquired a substantial stake in Cath Kidston Ltd, the UK-based clothing and homeware design and retail company, from its management and TA Associates Management for an undisclosed consideration. Cath Kidston had reported sales of £116m and EBITDA of £25m for the year ended 30 March 2014. The company currently operates 89 stores across Asia and 66 stores in the UK. Post-acquisition, Baring Asia will have equal ownership with TA Associates and will partner with its current management team to further develop its network in Asia.

Aurelius AG has acquired the Scholl footwear business of Reckitt Benckiser Group plc for an undisclosed consideration. In 2013, Scholl reported revenue of £74.9m. Aurelius will acquire the international rights for the footwear business, excluding those of North and South America. The acquisition will support Scholl footwear’s development and help it expand into new markets. The transaction fits Aurelius’ focus to acquire businesses with significant growth opportunities and represents Aurelius’ fourth investment in 2014. The rights to the American business will go to Germany-based drugmaker Bayer.

The Co-operative Group Ltd has agreed to sell its pharmacy business to Bestway (Holdings) Ltd, a UK-based cash and carry wholesaler, for a consideration of £620m. Upon completion of the transaction, Bestway will have an annual turnover of approximately £3.4bn and a global workforce of more than 32,600 people – with more than 11,900 staff working in the UK. The transaction is in line with The Co-operative Group’s strategy to reduce its debt and invest in its business and is in line with Bestway’s strategy to expand and grow its operations. The transaction is expected to close in October 2014.

Kingfisher plc has agreed to acquire 61.8% stake in Mr Bricolage SA, the French listed retailer of building materials, home improvement components and garden supplies, from Action Nationale des Promoteurs du Faites-Le Vous-Meme (ANPF) and the Tabur family. This transaction triggers a mandatory takeover offer to acquire the remaining shares in Mr Bricolage held by Forcole Company, Elimel Investment and Dicarol Investissement. The offer values Mr Bricolage at €155.82m. The acquisition will enable Kingfisher to strengthen its business activities along with its existing two successful brands in France.

The management of Homebuy, which provides easy-payment finance to purchase household goods, acquired the company in a management buyout transaction along with Seneca Partners Ltd and Intrinsic Equity for a consideration of £10m. The acquisition will enable Homebuy to develop and strengthen its business activities in regional markets as well as helping to fulfil the demand of the growing customer base.

Bathstore has been acquired by Stephens Inc, who invested alongside the current management in the transaction. The consideration was not disclosed.

Greentube Internet Entertainment Solutions GmbH – the Austrian developer and provider of gaming solutions for the internet, mobile devices and iTV, and a subsidiary of Austrian gaming and casino equipment group Novomatic AG – has acquired UK-based online gaming platforms provider business Bingocams from Dazzletag Entertainment Ltd for an undisclosed consideration. Under the terms, Greentube also took ownership of Bingocams’ integrated web platform that combines online bingo with social media and video. The acquisition will enable Novomatic to expand its online gaming business.

Hony Capital Co Ltd, the China-based private equity and venture capital firm, has agreed to acquire Pizza Express Ltd from Gondola Holdings Ltd for a consideration of £900m. In 2013, Pizza Express reported revenue of £369.4m and EBITDA of £90m with a workforce of 9,300 employees. With the local expertise of Hony Capital, Pizza Express will accelerate its growth in the Chinese market along with its UK business.

Starhotels SpA, the Italy-based hotel chain owner and operator, has acquired luxury boutique hotels The Gore Hotel and The Pelham Hotel from Con Ring, a UK-based private individual and other private shareholders for a consideration of £43m. The Gore Hotel and The Pelham Hotel have 50 rooms and 51 rooms respectively. The acquisition complements Starhotels existing portfolio of quality luxury hotels.

CafePod Ltd, a UK-based coffee capsules products manufacturer, has acquired Big Cup Little Cup Ltd, an online coffee capsules products retailer. Financial terms were not disclosed.