Consumer sector comment – March 2012

Date

This trend has continued in 2012 most recently with the £20m investment in JJB by Dicks Sporting Goods (the largest premium sports good retailer in the US).

As a group of strategic buyers there is a very strong rationale for them to acquire in the UK. Culturally it has always been easier for Americans to acquire in the UK as a foothold into Europe. This combined with the UK’s well-developed consumer market, excellent supply chains and minimal language barriers ensure acquisitions can be easily integrated and managed. The current weakness of the Sterling ensures the Americans get more bang for their buck and it’s a good time to acquire a strategic position now so that as consumer confidence returns American acquirers will have a strong position to capitalise on renewed growth. This long term view will deliver good returns for corporate cash that is currently not being particularly well employed.

For certain deals there is the opportunity to buy cheaply. The more challenged businesses, in particular the larger, more traditional high street retailers such as JJB have seen their valuations fall as both earnings and multiples have decreased.

Clearwater has experienced a strong surge in enquiries from American corporate across the consumer market interested in acquiring UK consumer businesses, and expects this to be a key theme for M&A through the rest of 2012. And its not just the Americans who are buying – this months acquisition of Eveden by Wacoal underlines the strength and attractiveness of UK consumer assets.

Deals

Wacoal Holdings Corporation, the listed Japanese manufacturer and retailer of lingerie and other women’s apparels, acquired Eveden Group Ltd, a company that designs and manufactures lingerie and swimwear for women, for £152m. The acquisition is in line with Wacoal’s strategy to accelerate its overseas expansion. Eveden has a sales network of over 5,000 retailers in more than 50 countries.

Sports Direct acquired Firetrap clothing the UK-based brand from World Design & Trade Co. World Design is currently in administration and the sale of the brand will save more than 170 jobs.

JJB Sports the UK listed sports retailer has received an investment of £20m from Dicks Sporting Goods the USA based listed retailer. Dicks plan to support JJB in its continued turnaround of the business.

Terra Firma Capital Partners acquired The Garden Centre Group, a retailer of plant and garden care products with 129 centers and an e-retailing platform, from Lloyds Banking Group for £276m. Terra Firma intends to expand the business.

TD Travel Ltd, a corporate travel company, has been acquired via an MBO backed by LDC. TD Travel recorded a turnover of £45m in 2011. The acquisition will help in the growth of TD’s business by extending its core model in new regions and facilitating the customers with value added and cost effective products and services. The transaction is in line with LDC’s expansion strategy which will help it to grow in the sector.

Equistone Partners Europe acquired a controlling stake in Audley Travel, a tailor-made travel business which reported revenues of £63m for FY2010. The investment will be utilized to support additional investment in Audley’s products, operations and team to enable it to maintain its market leading offering.

Cott Beverages Ltd, the UK subsidiary of Cott Corporation that produces bottled and canned carbonated soft drinks acquired Sangs (Banff) Ltd, a bottled water and soft drinks producer which went into administration in January 2012.

Royal Wessanen NV, the listed Netherlands based company engaged in organic food businesses, acquired Clipper Teas Ltd from Fleming Family & Partners. Clipper Teas had revenues of £16m in 2011.

Britannia Hotels Ltd’s subsidiaries acquired The Royal Hotel and The Clifton Hotel from their operator, ERH (Scarborough) Ltd, which is in administration. The Royal hotel was sold to Ambassador (East Cliff) Ltd and The Clifton hotel was sold to Britannia Hotel Wolverhampton Ltd.

Read the latest edition of Clearwater’s consumer team’s half-year consumer sector commentary here.