Retail sector proving popular

High profile deals like the public-to-private takeover of Debenhams by CVC and Texas Pacific may have dominated the headlines in 2003 but interest from private equity investors in the retail sector extends beyond this deal. Dedicated funds are emerging both in the UK and elsewhere in Europe and PricewaterhouseCoopers is predicting divestment by consumer goods companies in 2004 will boost private equity activity in the sector.

Stuart McKee, retail sector partner at PricewaterhouseCoopers Corporate Finance, said: “The retail sector has been a hotbed of rumour and speculation during 2003. However, many deals have yet to complete and M&A volume figures for 2003 are likely to be well down on the full year figure of 2002.”

In the UK Strategic Retail, the investment vehicle backed by a group of high net worth individuals to fund the acquisition of high street home decoration chain Fads, recently listed on London’s Alternative Investment Market. The floatation will provide financing for the turnaround company to purchase and invest is struggling and under-funded retail operations. Market capitalisation of the company on admission was £11.9m.

Strategic Retail was formed in April 2003 as a cash shell to attract companies that were seeking admission to AIM. The company raised £1.515m before expenses by way of an offer for subscription in November. To fund the expenses of the acquisition of Fads and floatation, the company raised a further £384,450 before expenses by way of a placing. Strategic Retail intends to improve the profile and variety of products stocked in Fads stores and identify sites in market towns and central London for new stores, as well as seeking other suitable businesses to buy. “Strategic Retail will be aggressive in acquiring, revitalising and growing companies like FADS and this listing will put us in good stead to do so”, said Roy Gabbie, executive director of Strategic Retail Plc. “Our goals now are to trade and grow FADS and to find new targets for the same treatment.”

In Sweden Retail Private Equity has launched its debut fund, RPE Nordic Fund 1, which has a target of SEK 750m (approximately €80m). The fund will focus on large and medium-sized growth companies in the retail sector in the Nordic region, drawing on the precedent set by successful retail groups such as IKEA and H&M.

“Private equity houses and hybrid investment vehicles will be the likely beneficiaries in 2004, as secondary brands are sold off by large FMCG (fast moving consumer goods) companies. Based on our current assessment of the market, we forecast a potential increase of 30-50% in such activity in 2004,” says McKee.

M&A deals in the retail sector 2003 YTD

Value (£m) % of total No. of deals

Corporate acquirers 923.7 36.3 31

Private equity – MBOs & development capital 244.2 9.6 5

Private individuals 1,379.60 54.2 7

Source: PricewaterhouseCoopers