Consumer sector comment – November 2009

Date

Online – the second coming

The continued growth in internet retailing has been well documented in many sources. The attraction for the consumer of shopping at any time of day or night, from the convenience of home without having to battle down the high street is a huge attraction for an ever growing range of products – which goes way beyond the original early adopters such as books and CD’s. Not surprisingly, this growth coupled with the benefit of a more flexible cost base, especially given the high property costs of UK retailers, is compelling. Despite challenging consumer markets the online retailers are attracting investment interest and strong multiples. In the listed arena this is evidenced by companies like ASOS. They have enjoyed a share price rise of well over 40% in the last 52 weeks and boasts a market cap of nearly £300m. Quite impressive given its last reported annual results earlier in 2009 showed turnover of £165m. But when that turnover is double what it was in the prior year it is not difficult to see why investors are valuing the business highly.

In the transactions market, we continue to see strong appetite for online businesses. Recent Clearwater deals have included the sale of buyagift.co.uk and a development capital raise for thehut.com. These deals are evidence that both investors and trade buyers are prepared to spend money in the online space despite the challenging consumer markets. As we speak to the private company investment market we consistently find appetite for online or strong multi-channel businesses. As the consumer continues to be more selective as to where they spend their hard earned pounds we expect the online retailers to continue to enjoy their time in the limelight – and if you own or manage one, now is a good time to think about taking some corporate finance advice and consider your options.

Deal activity was mixed in October and November with continued activity generated by financial distress. Trade buyers continue to take opportunity to consolidate markets and extract synergies where possible. Notable deals in October and November are listed below.

Deals

The Hut Group, which recently took the number one spot in The Sunday Times Tech Track 100 as the fastest growing private Technology business in the UK, has announced a multi-million pound investment in a transaction led by Clearwater. The funding will enable the business, which operates online entertainment sites www.thehut.com and www.zavvi.com as well as a range of white label site for leading retailers, to continue its acquisition strategy as well as drive organic growth through enhanced customer offerings. The Hut has emerged as real success story in the e-commerce world having averaged 189 per cent growth over the last four years.

Appleby Westward Group, the Spar wholesaler for the South West, has acquired three former Somerfield stores from Co-operative Group in Minehead, Liskeard and Keynsham. These stores will adopt the Eurospar format.

Benfield Motor Group has acquired London-based The Verve’s Dumfries and Carlisle car dealerships and seeks further acquisitions.

Britain’s Aquatic Superstorea Bolton-based aquatic pet centre which went into administration in September has been acquired by Aquarline, a Bradford-based pet product wholesaler.

The Giraffe Restaurant Group acquired 11 Tootsies restaurants from the administrator.

E-Trade Group acquired koodos.com, a UK fashion discount web retailer for an undisclosed amount. 

Marlwood plchas acquired BAI International, a Stockport based clearance goods wholesaler and Hannah Martin Holdings, a Stockport based branded merchandise wholesaler for a combined price of £6.3m.

Octopus Investments have invested £2m from the Capital for Enterprise Fund into Monkey Bizness Limited, the UK’s largest independent operator of family entertainment centres. The funding is to enable them to open further centres across the UK.

Sixty pubs from Regent Inns plc, that went into administration in the month, were acquired in an MBO. 12 other sites were sold to Punch Taverns.

Further to the collapse of First Quench Retailing Ltd, which trades as Threshers, Wine Rack, The Local, Haddows, Bottoms Up and Victoria Wine the joint administrators, KPMG, have sold the Wine Rack brand and 13 stores to Venus Wine & Spirits Merchants plc. SEP Properties Ltd have also acquired 8 stores.

Waitrose has acquired four Somerfield supermarket stores, in Ashbourne, Melksham, Storrington and Wellington from the Co-operative Group Ltd and acquired a Co-operative store in Menai Bridge, Anglesey. The Co-operative Group has also sold four stores in Scotland to Haldanes Stores Ltd.

Leekes acquired three Cole’s Home Furnishings stores, located in Bilston, West Midlands and Staffordshire, which will be rebranded as ‘Leekes incorporating Cole’s Home Furnishers.

Biba, the ladies fashion brand, has been acquired by House of Fraser where it will join their other ‘in house’ brands. House of Fraser is hoping to re-create the once very popular brand.

Outdoor toy manufacturer TP Activity Toys Ltd acquired Muddy Puddles Ltd, a Devon, UK-based children’s outdoor clothing retailer.

Virgin Wines Ltd acquired The Warehouse Wine Co Ltd, a Preston, UK-based online wine retailer for an undisclosed sum and the combined company will operate under Virgin Wines name.