Consumer Sector Comment – April 2010

Date

Easter’s impact this month may have been the reason that April failed to see as many deals complete as last month, we should also bear in mind that we are yet to know the impact of the air ban over the last few weeks, which may have left key advisors and businessmen stuck over seas. In terms of the UK consumer market it has been reported that only 1% of the UK trade is transported by air and so far there has been little recorded impact. Shoppers returned to the high street over the long Easter weekend as figures showed a year-on-year positive performance for March of 1% and a month-on-month rise of 0.1% and we hope to see these numbers will have continued to increase throughout April.

Despite the lower numbers, April has proved to be a very strong month in terms of the value of deals reported, with the much anticipated completion of two high value private equity deals, the £350 million sale of Card Factory to Charterhouse and the £500 million acquisition of DFS by Advent International. In addition, HobbyCraft has been acquired by Bridgepoint in a management buy-out for an undisclosed sum rumoured to be circa £100m.

There have also been a number of overseas trade buyers making strategic buys in the UK, such as the acquisition this month by US company Zipcar Inc, the world’s largest car sharing service, who has acquired Streetcar, the UK’s fastest UK growing car club. We have also noted several enquiries from international retailers wishing to explore strategic acquisition opportunities in the UK.

Nevertheless, with the election less than 24 hours away, the chance of a hung parliament, the conflicting policies of the main parties, including whether or not to increase NI, disagreement as to how and when expenditure cuts can be actioned without causing a double dip recession, the 2010 outlook for the UK retail market and the 3 million plus people currently employed within it remains at best unclear.

Deals

Global private equity firm Advent International has agreed to acquire DFS, the UK’s leading sofa retailer for £500 million. DFS began more than 40 years ago and are the number one brand in the UK sofa market with sales of more than three times that of their competitors. The business is based in Doncaster and has 74 stores nationwide, employing more than 2,600 people. Richard Baker, former CEO of Alliance Boots, who joined Advent International in August 2009 will assume the role of Chairman for DFS. Advent International has been running since 1984 and in the last ten years has completed over 25 investments worldwide.

The UK based greeting cards maker and gift wrap supplier Card Factory has been acquired by the private equity firm Charterhouse for £350 million from founders Dean and Janet Hoyle. Charterhouse will hold the majority stake in Card Factory, while post acquisition the current management will continue to run the business for the UK based private investor and Dean Hoyle will become non-executive chairman. Card Factory which began in the 1990’s selling cards out of the back of a van in Wakefield, now has around 480 stores in the UK, employing around 4,500 people.

The US based and world’s largest car sharing service, Zipcar Incorporated has acquired the London based car sharing company Streetcar. The £33 million deal brings together the two companies to create a single, global brand, focused on offering more convenience and variety to their members. The companies allow people the benefits of owning a car but without the hassle or the cost and is already a popular idea in the US, with people in major UK cities now seeing the benefits. Post acquisition the two companies will be folded into one entity under the Zipcar name.

The UK based theatre ticketing agent for the tourism and hospitality industry Encore Tickets has been acquired by founders Ashley Herman and John Wales for £20 million. The management buy-out is being backed by Livingbridge. Encore was established in 2000 to fulfil the need for a specialist ticketing company focused on delivering a full service to third parties in the travel industry as well as group organisers and online distributors. Encore sells in excess of 1 million theatre tickets annually and is the largest independent ticket wholesaler in the UK. Theatre business man Cameron Mackintosh and Producer Edgar Wallner, who were among the original investors will sell their stakes. The acquisition will allow Encore to take full advantage of their growing presence in the B2B online arena and consolidate its position in the market.

HobbyCraft, the UK’s out-of-town art and craft retailer has been acquired by Bridgepoint in a management buy-out for an undisclosed sum. Founded in 1995, HobbyCraft has 47 stores throughout the UK and is the first national arts and crafts retailer to cater for more than 250 different activities all under one roof. Chris Crombie, CEO of HobbyCraft, believes this deal will allow the company to accelerate its expansion plans and benefit from the funding and focus of Bridgepoint who are an experienced investor in the specialist retail market. The arts and crafts market in the UK is estimated to be a GBP £2 billion marketplace comprising of a range of operators. HobbyCraft are the leading player in the space carrying over 35,000 products.

Private equity owner Change Capital has appointed advisors to sell the fashion chain Republic. Run by former Marks & Spencer directors Luc Vandevelde and Roger Holmes who bought a majority stake in the chain five years ago, Republic sells brands including Superdry and G-Star. The Leeds-based company was valued at £105m in 2005 but private equity experts believe it might have doubled or tripled in value since.

Advent International has confirmed its sale of European discount retailer Poundland to Warburg Pincus for an undisclosed sum. Founded in 1990, Poundland is a general merchandise retailer which offers branded and own-label products across a broad range of categories, including health and beauty, household products, food, occasions and entertainment, all at the single price point of £1. The company currently serves almost 3 million customers a week, through 260 stores and employs over 7000 people. They are forecast to generate revenues in excess of GBP 700m in 2011. Advent acquired Poundland in June 2002 after a management buy-out. The retailer, which thrived through the recession as cash-strapped shoppers sought value, expects to accelerate their growth plans under Warburg Pincus’ ownership.