Consumer sector comment July 2016 – Life after Brexit


Related Content

When the UK decided to Brexit last month chaos ensued; the pound fell, the FTSE collapsed, triple A rating was lost, and the Prime Minister stepped down. However amongst this and high levels of uncertainty surrounding the future, the world of mergers and acquisitions (M&A) hasn’t stopped turning; with a number of high profile, high value deals still occurring. The UK has become more attractive due to falling exchange rates which have made businesses cheaper.

Turnaround for Tesco

Just prior to the UK’s decision to break ties with the EU, Tesco confirmed the sale of three of its UK subsidiaries, in a bid to refocus its efforts on its core supermarket trading – pretty much reversing the strategy of expansion the retail behemoth embarked on under its previous management. After record loses and a multimillion pound accounting scandal, the current turnaround is an effort to try to cut costs and revive sales.

In mid-June the supermarket giant announced the sale of Dobbies Garden Centre to an investor group led by Midlothian Capital Partners and Hattington Capital; eight years after a battle to acquire the company in 2008. With shopping centres seeing a drop in footfall and garden centres seeing a continuing increase – mainly driven by consumer trends shifting increasingly towards shopping as a complete leisure activity – the sector remains increasingly popular. Dobbies new owners, although focused on organic growth, may seek acquisitions in the space, including individual garden centres or smaller chains.

European style coffee house brand, Caffe Nero, agreed to acquire Tesco’s coffee shop subsidiary Harris + Hoole, which has 43 locations across the UK. Harris + Hoole was originally launched in 2013 as a partnership between Taylor St Baristas and Tesco, with the supermarket buying out the remaining 51% of the company in February 2016. Caffe Nero, who operates nearly 700 stores worldwide across the US, Poland, Turkey, Cyprus, Ireland and the UAE, intends to retain the Harris + Hoole brand and expand the business to increase its share of the UK’s €9.5bn coffee market.

Finally, Tesco has agreed to sell third subsidiary, Giraffe Restaurants, whose losses ballooned to €5m  in the year to March 2015, to Boparan Holdings, the company behind Harry Ramsden’s, Fishworks, and The Cinnamon Club, as well as Northern Foods and 2 Sisters Food Group. Giraffe, which was acquired by Tesco in 2013, has 54 standalone restaurants – 12 are franchise sites and 3 are within Tesco stores. Boparan, who wants to build a significant multi-brand restaurant portfolio, will support Giraffe in growing the business.

Retail leads the way

The cross border acquisition of Poundland by Steinhoff International has continued advancement post Brexit. This was the South African retailing giant’s third attempt at increasing its exposure in Europe this year after trying and failing to acquire Argos (which it lost to Sainsbury’s) and electronic good retailer Darty (which it lost to Fnac). A 15% drop in the pound against the rand made the Poundland deal all the more attractive with future prospects looking good. It is due to seal its €700m deal with the discount retailer in September, adding more than 850 stores to its already large UK empire, which includes Bensons for Beds, Harveys and Pep & Co. However Steinhoff could face competition from US activist investor Elliott Associates who acquired a 13.2% in Poundland just days after the announcement, setting up what could be a potential battle.

Sainsbury’s €1.7bn acquisition of Home Retail Group’s Argos is still ploughing ahead with boss Mike Coupe remaining “absolutely convinced” of the rationale to acquire the catalogue retailer. Post-acquisition (which has now been given the all-clear) the company will be the UK’s biggest non-food retailer, ahead of the likes of John Lewis and Amazon’s UK operation, benefiting from around 2,000 outlets and a mammoth 27 million customers. Online retailer eBay, who already has a click & collect partnership with Argos, is also ready to get in on the act; reports suggest that the company is interested in the idea of installing “pop ups” and click & collect facilities in some of Sainsbury’s stores, as a way of being more present in locations around the UK.

Only time will tell will what Brexit will bring; however at the moment the M&A market soldiers on.

Selected UK consumer deals

Leading not-for-profit healthcare organisation, Nuffield Health, acquired 35 gym sites from health club operator Virgin Active for an undisclosed amount. With the acquisition, Nuffield, who also operates 31 hospitals, boosts their number of gym sites to 112, making them a leader in the consumer health and wellbeing market.

Steelite International, manufacturer of tabletop products for the hospitality industry, was acquired by North America based private equity firm PNC Riverarch Capital and its Americas division president, John Miles. Steelite has sales of around €120m a year and exports its products to over 140 countries.

Swallowfield Plc, developer of personal care and beauty products with a number of leading brands, acquired The Brand Architekts, for a total of €13m. Brand Architekts own and manage a portfolio of mid-premium beauty and personal care brands that are sold in major UK high street retailers including Boots, Sainsbury’s and Waitrose.

New World Trading Company, a pub and restaurant group which was created by the owners of Living Ventures Group, was acquired by mid-market private equity firm, Graphite Capital, for €60m. The group operates 14 sites under five sub brands; The Botanist, The Oast House, Smugglers Cove, The Trading House and The Club House.

NYSE listed wine and spirits business Brown-Forman Corporation announced their acquisition of single malt Scotch whiskey distillery The BenRiach Distillery Company Limited for €400m. The purchase will bring the GlenDronach, BenRiach, and Glenglassaugh malt Scotch whisky brands into Brown-Forman’s growing portfolio which already includes well-known brands Jack Daniel’s and Old Forester.