Consumer sector comment – April 2011

Date

Despite recent disappointing sales figures on the High Street and signs of pessimism from some retailers who believe sales during May will be poor for the time of the year, there are still reasons for the retail sector to feel some optimism about the months ahead.

Online sales, for example, grew by 18 per cent over the first three months of the year, according to figures from the IMRG and Capgemini’s e-Retail Sales Index. Spending through the internet in March alone totalled £5.1 billion, with clothing accessories experiencing the largest rise in online sales of any sector at 21 per cent month-on-month and 59 per cent year-on-year. Health & Beauty product trade grew by 20 per cent compared to February, and was up 32 per cent year-on-year, emphasising the huge potential that exists for e-tailers.

Despite the struggles of the high street, multi-channel retailers performed best during the period with their sales growing 19 per cent compared to online only retailers seeing just a 6 per cent year-on-year jump. JoJo Maman Bébé, a UK-based multi-channel retailer of baby-related products, which was recently advised by Clearwater, is a good example. It has seen a 50 per cent increase in sales from £18 million to £27 million in the two years from July 2009 to June 2011. Attracted by its successful business model, funds advised by Magenta Partners have recently invested in a minority stake and will work with existing management to expand the business in the UK and capitalise on international growth opportunities.

With LDC, Inflexion and 3i also investing in the sector this month, it shows again that businesses who innovate know their customers better than their competitors and have the right proposition and business model to continue to grow and can attract investment.

Deals

Magenta Partners, a private equity house, has secured a minority stake in JoJo Maman Bébé, a UK-based multi-channel retailer of baby-related products. According to Chase Emson, partner of Magenta, who joins the board of JoJo Maman Bébé, the business operates in a growing sub-sector of the apparel retail market and they will work, alongside JoJo’s entrepreneurial management team, on expanding the business in the UK and capitalise on international growth opportunities.

Cuba Bidco, a company formed by Inflexion Private Equity Partners LLP, has entered into an agreement to acquire Ideal Shopping (IDS), a mail order retailer based in the UK. The transaction has an estimated equity value of some £76 million. The offer represents a bid premium of 16.7 per cent over IDS’s closing share price of £ 1.885 on 19th April 2011, the last trading day before this agreement was announced. The transaction is subject to shareholder approval and is expected to close in June 2011.

3i Group, a private equity house headquartered in the UK, has acquired a minority interest in GO Outdoors, a retailer of outdoor clothing and equipment based in the UK. The total investment is valued at £28 million and was made via the purchase of existing and newly issued shares in GO Outdoors. The founders and management of the business will continue to hold significant stakes, as will existing GO Outdoors shareholder YFM Private Equity. It is understood that the existing shares purchased by 3i were acquired from YFM Private Equity. Mr David Whileman and Mr Justin Maltz of 3i will join the board of GO Outdoors.

The domain name, trademark and customer database of Be-Cheeky, an online lingerie retailer based in the UK, has been acquired by Lovehoney, a UK-based online underwear retailer. The assets were acquired out of liquidation and the consideration was not disclosed.

Rippleglen, a newsagent operator based in the UK, has been acquired in a management buy-out. The consideration was not disclosed. Funding was provided by Lloyds Banking Group. According to Mike Colley, managing director of Rippleglen, the transaction marks the start of a new era for Rippleglen as the new owners intend to expand the business and diversify into new markets, such as convenience, as well as building their presence in bus stations, railway stations and hospitals.”

Superhouse, a footwear company based in India, has fully acquired Briggs Industrial Footwear, a supplier of footwear and protective clothing for industrial workers based in the UK, for £1.4 million.

LDC, a mid-market private equity house based in the UK, has made a development capital investment in Entertainment Magpie, trading as Musicmagpie.co.uk, a purchaser and multi-channel retailer of CDs, DVDs and games based in the UK. Details of the investment were not disclosed. The consideration will be used to extend the company’s online purchasing and sales capabilities overseas, as well as to invest in its IT infrastructure.

Virgin Active Group, a health club operator headquartered in the UK has acquired Esporta, a UK health club operator, from Societe Generale. The consideration was approximately £77.6 million. The transaction is subject to OFT approval. According to Mr Richard Baker, Chairman of Virgin Active, the purchase will enable them to accelerate their growth plans in the UK. Mr Matthew Bucknall, Chief Executive of Virgin Active, added that the acquisition broadens their product offering and demonstrates their willingness and ability to lead consolidation in the market. Virgin Active’s strong organic growth story, evidenced by the new clubs they are opening in Italy, Iberia and South Africa, combined with the benefits the Esporta acquisition will bring, means that they are well positioned to make significant progress in the years ahead.