Consumer Sector Comment – November 2014

Date

In 2013, globally, deals announced by strategic trade buyers in the clothing and footwear sector fell to their lowest point for almost 10 years. Despite corporates holding large cash reserves and enjoying high share prices, companies held off investing due to concerns over the economy.

2014 is shaping up to be a more active year for strategic trade buyers. In many cases, players in similar markets have combined to increase market share and unlock cost savings. For example: in March 2014, Mens Wearhouse Inc. acquired rival Jos A Banks Clothiers Inc. for €1.5bn. The deal created the fourth largest men’s clothing retailer in the US, with expected synergies of €80-120m. In Europe, intimate apparel brand owner DBApparel was acquired by Hanesbrands for €400m at a multiple of c. 7.5x EBITDA. The acquisition of DBA was Hanesbrands’ second major underwear acquisition within a year, following their acquisition of Maidenform in October 2013. These deals ensure that Hanesbrands is one of the largest global players.

While these transactions were driven by synergies and the desire to secure a strong market position, there has also been continuing interest in seeking out prospective growth in new markets. Cath Kidston and TM Lewin have both benefited from their appeal to Asian consumers. This summer, Baring Private Equity acquired a ‘substantial’ number of shares in Cath Kidston from the founder and her partners TA Associates. The deal is believed to have valued the retailer at close to €315m. The rationale behind the transaction is to build on the growing demand for the company’s floral products in Asia – in Japan, the brand is so popular that Cath Kidston reportedly walks around under a pseudonym to avoid being mobbed. It is expected that there will also be growing interest in the products in China.

The importance of the Chinese market was also evident in the announcement last month that TM Lewin, the multi-channel shirt retailer, had sold a stake to Shandong Ruyi. TM Lewin had originally sold a stake to Itochu, the Japanese trading house and major supplier to TM Lewin, earlier in 2014. In October, however, Shandong Ruyi – a Chinese textiles company (in which Itochu also holds a stake) – also acquired a stake in order to help expand TM Lewin’s business in China. Another Chinese business investing in Europe last month was Fosun, who acquired Tom Tailor Group of Germany with the aim of bringing the brand to more Chinese consumers.

With large global businesses looking to extract synergies and Far Eastern businesses looking to bring western brands to their home markets, we believe there will be increased mergers and acquisitions in the clothing and footwear sector. Other transactions of interest in the clothing and footwear market this month include:

  • Palladin Consumer Retail Partners announced a majority investment in Harrys of London, a London-based luxury shoemaker and accessories brand. The brand is known for combining traditional cobbling techniques with the latest footwear technologies, with its shoes sold in the UK, UAE, Kuwait and Japan.
  • Italian fashion group Moda, headed by entrepreneur Cleto Sagripanti, acquired an 85% stake in Kalliste, an Italian manufacturer and retailer of women’s shoes, in order to strengthen its offering in the luxury segment. The company also announced that it is looking for further acquisitions in 2015.
  • Fran Cotton and Steve Smith, former England rugby players and co-founders of multi-channel casual clothing brand Cotton Traders, bought back a 33% stake in the company from Next, the listed UK clothing retail chain, for a consideration of €20m. The plan is to explore new markets and expand internationally. In 1997, Next acquired its stake in Cotton Traders. Cotton Traders, which operates through 130 stores, reported revenues of €100m for the year ending 31 January 2014.
  • Tengram Capital Partners announced that it has acquired a majority stake in Luciano Barbera, an Italian ultra-luxury apparel brand. Products are sold through speciality stores and department stores across the US, Europe and Russia. The company’s iconic founder was once described as ‘the most elegant man in the world’. The deal is estimated to be valued at €25m.

 

Selected UK Consumer Deals

Zebco Brands, a US-based fishing equipment supplier and subsidiary of W.C. Bradley, acquired Preston Innovations Ltd, a leading match and carp fishing brand, for an undisclosed consideration. The acquisition is in line with Zebco’s international growth strategy, helping to increase its presence in Europe.

LDC has completed a significant investment to support the €53m MBO of Eley Group from IMI plc. Eley is the world’s leading manufacturer of .22LR rounds for the target shooting market. The rounds are used in target shooting by Olympic standard athletes at all major global tournaments. The deal with LDC will provide further capital to help accelerate the group through new product ranges and further penetration of the global marketplace.

Great Hill Partners LLC, the US-based private equity firm, acquired Momondo Group Ltd, a travel search engine company that enables users to find and compare prices on airplane tickets, hotels, cars and travel deals, in a management buyout transaction for a consideration of €167m. Under the terms of the agreement, Great Hill will invest €100m to acquire a majority stake in Momondo.

Encore Capital has acquired The Third Space, an operator of luxury health and fitness clubs, from Graphite Capital Management for an undisclosed consideration. The Third Space operates across two London sites – one in Soho and one in Marylebone. The acquisition is in line with Encore’s strategy to establish a London-centric leading luxury health club group and to add further premium gym sites to its portfolio. Encore already owns the Reebok Sports Club in Canary Wharf.

Bibendum Wine Ltd, the wine supplier, has merged with PLB Group Ltd, an importer and seller of wines, beers and ciders, for an undisclosed consideration. The merger has led to the creation of a new entity, The Bibendum PLB Group. The deal allows the companies to implement their targeted channel strategy, with Bibendum concentrating exclusively on serving the on-trade business and PLB handling the off-trade. Jeffrey Fredericks, founder and chairman of PLB, commented that ‘the two companies now join to become the UK’s most powerful independent drinks company and a unique route to market for any supplier’. Walker and Wodehouse Wines has also joined the group and will focus on supplying independent merchants and regional wholesalers.

Young & Co.’s Brewery plc, a listed UK-based company engaged in the management and operation of pub estate including hotel divisions, has acquired 580 Ltd, an owner and operator of pubs, for a consideration of €13m on a debt free basis. The acquisition is in line with Young’s strategy of adding high-quality managed houses to Young’s and Geronimo’s estates.

BHS Tabletop AG, a listed Germany-based manufacturer of porcelain and tableware, has acquired a 70% stake in John Artis Ltd, a UK-based wholesaler and distributor of cutlery, tableware, glassware and barware to the food services industry, for a consideration of €5.5m. Under the terms, the consideration will exclude an earn-out payment based on earnings of John Artis for the next three years. The acquisition is in line with BHS Tabletop’s strategy to expand in the international tabletop sector and strengthen its position in the UK.

Hawthorn Leisure Ltd has acquired 25 pubs from Nectar Taverns Ltd, a privately owned managed pub company with 28 outlets, predominantly in the north west of England. The transaction follows Hawthorn’s earlier acquisition of 275 pubs from Greene King and 88 pubs from R&L.

Shiva Hotels Ltd has acquired the landmark Kingsway Hall Hotel, situated in Covent Garden, from Cola Holdings, the family-run hotel business controlled by Bakir Cola, for €120m. The acquisition is in line with Shiva Hotels’ strategy to build a portfolio of quality hotels in Central London. Shiva Hotels will further invest €20m to fully refurbish and extend the hotel.