Consumer sector comment – July 2012

Dato

Asian companies have shown continuing interest in investing in UK companies and brands to exploit shifting patterns in global consumption.

A high profile example was Chinese state-owned Bright Foods’ acquisition of a 60% stake in Weetabix, earlier in the year. The acquisition will allow Bright Foods to take advantage of fast-growing demand for packaged and convenient healthy foods in China, with the company selling the product through its existing distribution channels and its own retail network. Bright Foods had previously tried and failed to buy United Biscuits and Yoplait. The deal represented the largest overseas acquisition by a Chinese company in the food and beverage sector.

Meanwhile, Japanese vinegar manufacturer, Mizkan, bought the vinegar and sour pickles division of Premier Foods for £40 million, including well known brand Sarsons. The acquisition will add to the group’s global brand portfolio and allow Mizkan to expand its presence in the UK market.

Asian interest in strong British brands has also been seen in the clothing sector. In May, traditional Savile Row tailor, Gieves and Hawkes, was acquired by Trinity Ltd, the listed Hong Kong based retailer of high-to-luxury end menswear. YGM Trading Ltd, another Hong Kong based retail group, also rescued luxury brand Aquascutum from administration. In both cases, the new owners are seeking to benefit from strong Asian demand for luxury goods.

Last month, Itochu, the Japanese trading group, acquired Quantum Clothing, a Nottinghamshire-based textiles company and supplier to Marks and Spencer. Quantum was formed from a management buyout of Coats Viyella and specialises in the manufacture of menswear, hosiery and lingerie. Nigel Lugg, chairman and chief executive commented that the acquisition would allow Itochu to strengthen its relationship with Marks and Spencer and give access to Quantum’s “world-class manufacturing units” in Sri Lanka, India and Cambodia.

We expect to see further Asian investments taking place over the coming months.

Deals

Flying Brands Ltd announced that its subsidiary Gardening Direct Ltd, United Kingdom-based online garden equipment retailer has been sold to Jersey Choice Marketing Ltd. The deal value was £2.9 million and will be paid in cash. This will be the third spin-off this year after the sale of Flying Flowers and Flowers Direct to Interflora in February, followed by Garden Bird Supplies.

Gladys Emmanuel Ltd, a company wholly owned by Theo Paphitis, has bought the electrical and hardware retailer Robert Dyas Holdings Ltd. in a deal estimated to be worth about £10m. Its majority shareholders Allied Irish Banks and Lloyds Banking Group have sold the stake. Chairman Geoff Brady states, “The sales process attracted a great deal of interest from potential buyers, both from the UK and overseas, but I believe this transaction provides significant benefits both to the Robert Dyas team and to our customers.”

Sports Direct International PLC has acquired a 51% stake in Flannels Group Ltd, the luxury designer fashion retailer for an undisclosed sum. Flannels retails designer fashion, footwear and accessories, including brands such as Dolce & Gabbana, Tom Ford, Lanvin and Canali. “Flannels is a fantastic business and a perfect fit alongside Cruise and Van Mildert within our premium lifestyle division,” said Sports Direct chief executive Dave Forsey.

Itochu Corporation has acquired Quantum Clothing Group Ltd, the Sutton-in-Ashfield, UK-based textiles manufacturer, for an undisclosed sum. Mr Nigel Lugg of Itochu Corporation stated: “We are delighted to be able to welcome Quantum to the group. It further strengthens our links with Marks & Spencer, and will give us access to Quantum’s world class manufacturing units.”

German operator FTI Group acquired 85% of the shares of Stelow Ltd, the holding company of troubled Youtravel.com Ltd, a London-based accommodation-only supplier. Dietmar Gunz, CEO of the FTI Group, stated: “This decision marks an important step in the expansion of our international sales activities and Youtravel.com Ltd provides the opportunity to participate in the fast growing online travel market.”

Novus Leisure, the owner of the Tiger Tiger and Balls Brothers bar chains, is planning on expanding activities in Manchester after a £100m buyout. The business, which has 52 outlets, has been acquired by private equity firms Hutton Collins Partners and LGV Capital. It now plans to double its number of central London locations over the next three years and to target cities including Manchester, Bristol and Leeds.

Premier Foods PLC agreed to sell its vinegar and sour pickles division to Japan’s Mizkan Corporation, a vinegar manufacturer. It is part of an on-going bid to restructure its struggling business by spinning off non-core assets. The deal was agreed for a cash consideration of £41m.Chief Executive Michael Clarke said the move was “another important step” in the strategy of focusing on core brands.