Consumer Sector Comment – January 2016


Answer to Amazon…?

The competitive threat of Amazon has been a driver of defensive strategies for some time now across the global retail sector. Three further moves announced by the online retail giant in the latter half of 2015 lead us to expect an acceleration in M&A moves in response:

  • After introducing free same-day delivery for prime members earlier in 2015 (as well as an additional 1-2 hour service), the group opened its first ever bricks and mortar store, Amazon Books, in Seattle in November. These moves increase the group’s online dominance and signal its omnichannel aspirations;
  • Amazon signalled its determination to extend into traditional supermarket territory in Europe, with the launch of a “supermarket” service in Spain and Amazon Pantry in Germany, Austria and the UK – a delivery service for 4,000 branded household goods and groceries. Goods are ordered by Prime customers through a box system, which the retail giant has priced at €4.00 in the UK for next-day delivery for the first 20kg order and €1.32 for each subsequent box; and
  • Finally, Amazon has also started offering loans to customers buying products from its website in a move that could shake up the furniture and electricals market. The group is offering a new pay monthly option on orders of more than €530, which can include multiple items. The loan can be spread over two, three or four years depending on the size of the purchase, with Amazon charging interest at an advertised rate of 16.9% in the UK. Customers do not have to pay a deposit, meaning the first payment is their opening monthly instalment.

Signs that supermarket groups are taking serious steps to respond to the Amazon challenge came with the acknowledgment at the start of this year that Sainsbury’s had made a €1.34bn approach for generalist retailer Home Retail Group in late 2015. There had been plenty of rumours regarding potential private equity interest in Home Retail Group but the interest from Sainsbury’s was more unexpected and highlights the scale of the Amazon threat. Sainsbury’s claims the deal will also provide a platform for growth. It argues there is a strong rationale behind a tie-up: bringing together two significant complementary businesses, capable of offering customers fast and reliable delivery across a range of platforms.

Argos has taken Amazon head on with its investment in a same-day delivery service – combined with Sainsbury’s store network, the result could be a powerful omnichannel model spanning a wide range of grocery and non-grocery goods. This is likely to be just the start of a series of defensive M&A moves in the European retail sector. Watch this space…

Selected UK Consumer Deals

Cinven Partners has agreed to acquire fashion footwear retailer Kurt Geiger Ltd from Sycamore Partners for €328m.

Lewis Trust Group, owner of River Island, has acquired a majority stake in premium womenswear brand Mint Velvet. It will help Mint Velvet to open 20 stores over the next three years and grow the company’s online business.

3i Group plc, along with the management of Audley Travel Group Ltd, has agreed to acquire the company in an MBO from Equistone Partners and other shareholders.

Swiss-based Hotelplan Holding AG has acquired adventure holiday provider Explore Worldwide Ltd from Holidaybreak Ltd, a subsidiary of Cox & Kings, for a total consideration of €34.6m.

KKR has backed Casual Dining Group, which operates 290 sites across the UK, to fund further growth and strengthen its existing capital structure.

PE firm Livingbridge has completed a €13.2m investment in French restaurant group Le Bistrot Pierre.

A consortium of investors led by Manjit Dale has acquired a majority stake in Cubitt House Ltd, the pub and hotel operator. The transaction provides growth capital funding to Cubitt and facilitates the future expansion of the Cubitt House brand.

CVC Capital Partners has acquired a 40% stake in Moto Hospitality Ltd from the Universities Superannuation Scheme Ltd, the UK-based private sector pension fund.

Lanes Health, a maker of herbal medicines and supplements whose products include Olbas Oil, has bought Pro Plus, a stimulant used by students which provides temporary relief from tiredness, from German multinational chemical and pharmaceutical group Bayer.

Eden (GM) Ltd has acquired Wokingham Motors Limited, the car dealership, for an undisclosed consideration. The acquisition will enable Eden to increase its market presence in the Southeast region. Meanwhile, Meridian Motor Group Ltd has acquired the Lexus and Toyota car dealership in Leeds and Toyota car dealership in Wakefield of Lookers plc, for a total consideration of €17m.

Amica Wronki SA, the listed Poland-based producer of white goods, has acquired CDA Group Ltd, the UK-based manufacturer and supplier of kitchen appliances, for a consideration of €32.6m.

Kingstown Associates, a mail-order company which owns a number of lifestyle brands predominantly aimed at the over 60s, has been acquired in a management buyout.