Consumer sector comment – June 2012

Date

This month has seen some interesting developments in the digital space as Sainsbury and Tesco have both made acquisitions.

Sainsbury acquired HMV’s 64% stake in Anobii, the e-book platform for £1. The Anobii network allows users to purchase ebooks and also share reviews. Anobii currently has around 60,000 customers internationally and is also owned by major publishers, HarperCollins, Penguin and Random House UK.

Tesco bought We7, an online radio player founded by Peter Gabriel of Genesis fame for £10.8 million. The website lets listeners create a personalised radio station by picking the artists they want to listen to. Digital director Mark George said: “This move will help us offer a greater choice for the growing number of customers who want to access music instantly on any device. We7 has a great team and a good technology platform from which we can launch a range of digital music services in the future”. Last year, Tesco also bought Blinkbox, a film streaming service. At the end of the year, it announced that it was offering digital versions of films bought on disc in store via Blinkbox.

CDs, DVDs and books have formed an important part of the non-food product offering for the leading supermarket groups. These recent acquisitions reflect the growing importance of the digital space as consumers move away from traditional store-based retail in the entertainment categories. For example, according to the Publishers’ Association, sales of ebooks grew by 366% in the UK in 2011. We expect to see further similar transactions taking place over the coming months as retailers position themselves to capture growth in the digital market.

Deals

FTI Group, a Germany based Investment Company, acquired 85% stake in Youtravel.com Ltd, a provider of online resort and hotels reservation services. Youtravel.com Limited generated revenues of £79m in the year 2011. The acquisition will enable FTI Group to expand its footprints in international sales activities, thereby giving them an opportunity to participate in the fast growing online travel market. As part of the deal, Youtravel will gradually stop selling direct to the consumer (B2C) and will focus entirely on selling through the trade (B2B).

Tesco Plc acquired 91% stake in we7 Ltd, an online music service provider that allows users to stream and download music tracks, from Eden Ventures, Pentech Ventures and Qualcomm Ventures for £10.8m. The transaction is in line with Tesco’s strategy to offer its customers new and innovative ways of accessing digital entertainment and will also complement Tesco’s current music offer in store and online.

EQT Partners AB, the Sweden based private equity firm, acquired 90% stake in Vertu Ltd, a Luxury mobile phone distributor, from Nokia Oyj for £162m. EQT will continue develop Vertu through retail expansion and investments in marketing and product development.

Lakeshore Lending Ltd, an UK based investment holding company and a subsidiary of American Greetings Corporation, acquired 400 stores of Clinton Cards Plc for £23.8m.

Alno AG, the listed German kitchenware manufacturer, acquired Built-In Kitchens Ltd, a kitchen furniture retailer. The transaction will help Alno to further enhance its retail presence in England & Wales.

Moneysupermarket.com Group Plc, an online price comparison company acquired MoneySavingExpert.com, a website operator that provides money saving guides, tips, tools, and techniques, from Martin Lewis and other investors, for £60m. The transaction will allow Moneysupermarket to expand its product offerings and increase its direct-to-site revenue. For MoneySavingsExpert, the deal will allow the company to reach a wider customer base.

Britain’s third largest supermarket group J Sainsbury has entered the e-book and social network market with the purchase of HMV Group’s shareholding in Anobii for a nominal £1. The acquisition and its investment in the future development of the business would result in it having a 64% stake in Anobii, which currently has over 600,000 users worldwide and a library of 60,000 e-books. Anobii’s other shareholders are publishers HarperCollins, Penguin and Random House. The deal supports Sainsbury’s drive into the growing online and digital entertainment market.