Wednesday 7th October 2015
NEWS TICKER: Tuesday, October 6th: Vistra (UK) Limited ('Vistra') is pleased to announce the appointment of Barry Gowdy as Director, effective 1st October. Gowdy joins Vistra from RBC Wealth Management, where he was responsible for the firm's UK property trust clients – According to NIBC the labour market report for September is one indicator that US economy is losing momentum. It is a view reflected by the weakening of business confidence surveys and a more moderate pace of job growth over the last few months. Although not related to the problems that have engulfed emerging markets over the last summer,, it appears that US businesses have on average accumulated too much in inventories. The number of non-farm payrolls increased by only 142k, whereas 200k was expected and the August reading was revised downwards from 173k to 136k. Additionally, underlying figures indicate that a relatively strong boost in the number of jobs in the public sector camouflaged the weakness in private sector job gains. Market participants were probably also intrigued by the slow rate of hourly wage (earnings) growth. These stayed flat in September compared to August, while the annual rate of wage growth stayed at 2.2%, in line with the annual rate in between 2.0 and 2.5% range this year - Global Jet Capital, a provider of financing solutions for large-cabin, long-range private jets, has agreed to purchase the aircraft lease and loan portfolio of GE Capital Corporate Aircraft in the Americas representing approximately $2.5bn of net assets. Shawn Vick, executive director of Global Jet Capital says, “We are investing heavily in growing the business both organically and through strategic acquisitions such as this one with GE. This is a prime example of our industry expertise and investment capital coming together to evaluate and identify an opportunity to expand the business in a disciplined, carefully measured way.” The price point of the aircraft range between $25m and $75m on average, and corporate users and high net worth individuals will seek competitive financing solutions rather than allocate their own cash resources which are better invested in their own businesses - Gresham Computing plc, a provider of real-time financial transaction control and enterprise data integrity solutions, today announced the appointment of Damian Canning as Sales Director for North America. Based in Gresham’s New York City office, Canning will be responsible for continuing the strong growth of Gresham’s Clareti Transaction Control (CTC) platform in North America - Spending on food, entry fees, insurance and entertainment over the three day Eid al-Adha festival, some 300,000 Saudis spent SAR400m ($107m), according to local press reports. Bahraini officials report higher than usual tourist inflows and spending. Roughly 50% of those who checked in the kingdom’s hotels were nationals of member states of the Gulf Cooperation Council, enjoying Bahrain’s more relaxed ambience - The Philippine unit of Royal Dutch Shell Plc said on Monday it was looking to launch a long-delayed initial public offering (IPO) sometime next year, and may sell even more than the minimum requirement of 10 percent of common stock. "We're getting ready for it," Shell Philippines Country Chairman Edgar Chua told reporters on the sidelines of a Shell event. "We've discussed it with the (Philippines Department of Energy), it's just a question of timing." Pilipinas Shell Petroleum Corp, which operates one of the country's two refineries, is required under a nearly two-decade local law to conduct an IPO. The company had previously cited unfavourable market conditions and the need to upgrade its local refinery in deferring a share sale. Shell's refinery upgrade is underway and could be completed hopefully by the middle of November says a Shell spokesman - European regulators have approved the London Stock Exchange's plan to link the operations of LCH.Clearnet and EuroCCP to offer investors more choice for clearing their trades on the UK bourse. The link is set to begin October 26th - The Straits Times Index (STI) ended 58.1 points or 2.08% higher to 2851.25, taking the year-to-date performance to -15.27%. The top active stocks today were SingTel, which gained 2.81%, DBS, which gained 2.36%, UOB, which gained1.64%, OCBC Bank, which gained2.05% and CapitaLand, with a 2.49%advance. The FTSE ST Mid Cap Index gained 1.45%, while the FTSE ST Small Cap Index rose 1.04%. - Morningstar has downgraded the Aberforth UK Small Companies fund to a Morningstar Analyst Rating™ of Silver. The fund previously held a Gold Rating. Samuel Meakin, manager research analyst at Morningstar, said: “Following a recent Morningstar Analyst Ratings meeting, we have moved the Aberforth UK Small Companies fund to a Morningstar Analyst Rating of Silver. The fund was previously rated Gold. Whilst we still hold the fund in high regard, the recent and upcoming changes to the management team have slightly reduced our level of conviction. Andy Bamford, one of the fund’s six managers, is set to retire at the end of this year; he follows David Ross, who retired in 2014.” - Rubicon Minerals Corporation (TSX: RMX)(NYSE MKT: RBY) was asked by Canada’s Ministry of Environment and Climate Change (MOECC) on September 30th to temporarily suspend mill operations at the Phoenix Gold Project) to treat elevated ammonia levels, discharge sufficient water from the tailings management facility (TMF), and to upgrade the TMF, under specific timelines. It also ordered Rubicon to undertake other operational and reporting obligations, including construction upgrades to the TMF. The company has been utilizing alternative technologies to address the ammonia levels in the TMF - LIFE, the global diaspora organisation of Lebanese finance executives says it has signed an academic partnership with Cambridge Judge Business School, the business school of the University of Cambridge – Figures shows that the United Kingdom’s HMRC collected a record £7.5bn in stamp duty from residential property transactions in 2014/2015, up from £6.45bn the previous year and from £4.9bn in 2012/2013 and the total tax collected from home buyers in the UK has grown by 165% over the last six years alone. Transactions in London contributed the most residential stamp duty revenue at just over £3bn, followed by the South East at £1.6bn and between 2008/2009 and 2014/2015, stamp duty revenues in London have grown by 248%, compared to around 158% in the East of England and 140% in the South East. The latest analysis reports from both Knight Frank and Savills look into the effect of this on the prime market in London and both conclude that the stamp duty changes introduced last December are still having an effect on sales 10 months on.

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Sale of the Century

Tuesday, 01 July 2008
Sale of the Century Private equity money swooped into the retail arena during the last few years, snapping up crown jewels across the world. By last year it had almost become a sport for predatory banks and financial houses. Fronted by hard nosed retail operators with turnaround track records, financiers tried to woo disgruntled shareholders with the promise of a premium price for their stakes in return for the opportunity to take the helm and turn high street under performers into consumer stars. That was then; this is now. Have crashing consumer confidence, woeful high street sales and the cold chill of a debt freeze put an end to the age of the mega-deals? Mark Faithfull reports.
Private equity money swooped into the retail arena during the last few years, snapping up crown jewels across the world. By last year it had almost become a sport for predatory banks and financial houses. Fronted by hard nosed retail operators with turnaround track records, financiers tried to woo disgruntled shareholders with the promise of a premium price for their stakes in return for the opportunity to take the helm and turn high street under performers into consumer stars. That was then; this is now. Have crashing consumer confidence, woeful high street sales and the cold chill of a debt freeze put an end to the age of the mega-deals? Mark Faithfull reports.
RETAIL IS IN fact a relative newcomer to the private equity portfolio. Traditionally viewed as a high risk sector, open to the vagaries of consumer tastes and with limited international expansion opportunities, the market was left largely to founding families and listed company status. That was until the last few years when, in many markets, consumer spending went unchecked and continued upwards and upwards unabated, regardless of a worsening economic picture in the wider world. At the same time retailers began to flex their muscles outside their home markets, brands began to travel dramatically and the Far East began to open up as a fledgling consumer market; and although small it showed a particularly refined (nay obsessive) interest in high end luxury products.

What has followed is a series of mega-deals. Just a few of the high profile highlights include KKR fronting the purchase of US toys retailer Toys ‘R’ Us and Texas Pacific Group buying venerable US department store group Neiman Marcus and Australian household name Myer. In Europe footwear retailer Kurt Geiger was snapped up by Graphite, in the UK Debenhams flipped through the hands of private equity for vast profits, while Cortefiel in Spain has predicated growth on its equity backing. Moreover, Icelandic predator Baugur has moved in to buy a string of, predominantly British, retailers. Last year private equity finance backed the biggest deal of them all; the purchase of the merged Alliance and Boots operations to create a European pharmaceutical powerhouse. Even Sainsbury’s was circled by equity houses although it managed to repel any and all advances.

There have been many more deals. The reasoning behind the majority of them has been very similar: despite the consumer boom, at any given time a number of retailers tend to be struggling or underperforming, either as a result of lethargic or unfocused management teams or because the retailer has failed to adapt to declining sales in its traditional retail channel. That’s the downside. The upside? Well, retail offers any number of attractive attributes. For one, it is one of the most cash-generating sections of the economy. Two, buyout groups like companies with substantial assets, and most retailers own at least some of their valuable property freeholds. Three, private equity companies like businesses with steady income streams, and (with seasonal peaks and troughs taken into account) retailers’ cash tills ring all year round.

Private equity money has flowed into those businesses where the financial team believes that the company’s woes are in part of their own making, where the retail niche is under-exploited and often where property is part of the play. Get the formula right and fortunes can be made. At least, up until the middle of 2007 when consumer spending in several key markets including, notably, the US, the UK and Ireland, and Spain began to fall off a cliff and the cost of debt (when it could be found) began to spiral upwards. “It is only in the past few years that private equity has really had an appetite for retail,” reflects Henry Jackson, chief executive and managing director of London-based Merchant Equity Partners, which he joined from Deutsche Bank where he headed up the German bank’s European consumer and retail group. “Those companies have had some very successful transactions and we have seen a period when companies have been sold at ten or 11 times earnings. I think we will now see much less activity from private equity and in broad terms a lot less interest.”

Jackson’s company specialises in the retail field and has continued to invest in retail opportunities. In October 2006 it bought the retail arm of struggling UK kitchens and bedroom furniture retailer and distributor MFI Group and in March of this year it snapped up French furniture retail chain BUT from Kesa Eletricals for €550m. “We target companies with potential, but they need to be of scale. They need to matter,” he says. “Valuation is very difficult in retail. Certainly we look for good returns but there is no doubt that retail is at the high risk end.”

Nowadays, following that extended bull run of consumer spending in the opening years of this century, that level of risk appears to be putting equity money off any move onto the high street. In the first five months of 2007 over €25bn of private equity money exchanged hands in the retail sector, almost two thirds of the total retail deals for the period. The first five months of this year have seen that total plummet by an order of magnitude to just €2.4bn, representing a paltry 15% of deal totals. In comparative periods the sector fell from the most active for private equity deals to fourth.

In May this year Bridgepoint Capital became the first private equity house to buy back debt from a UK portfolio company when it bought €13m of the €240m of debt used to finance the €455m management buyout of UK clothing chain Fat Face from Advent International. Nonetheless, others remain positive about the role of private equity, despite the current downturn. Jón Ásgeir Jóhannesson, the controversial executive chairman of Icelandic operator Baugur Group, has snapped up a host of retail names with a focus to date on the United Kingdom. A hybrid company, Baugur started off by running its own grocery retailing operations in Iceland but by using venture capital soon sought bigger markets in which to target retailers it felt were punching below their weight. In a back story, behind the scenes Jóhannesson has been reportedly dogged by financial investigations by the Icelandic authorities for what he claims are politically motivated reasons and to date nothing has stuck.

Like Jackson, Jóhannesson is undeterred by the current downturn and Baugur has been linked with an audacious bid for Saks Fifth Avenue, in which it already has an 8.5% stake. While he will not be drawn on what would represent the standout deal of 2008, he does admit that the US is of interest but dismisses the notion that the weak US dollar is part of the appeal. However, Jóhannesson says that he sees “some interesting value around” and that “it will be an interesting year”. Jóhannesson typically looks for management teams to invest in their own operations and “to take part in what we are doing”. Previously Jóhannesson has been drawn to UK retailers, in part because of the thriving UK high street and in part because he felt that the market contained a number of clear underperformers. Now he says that Baugur is seeking “something that has the potential to travel across markets”.

Online sales have held up better than store sales in the opening phases of the consumer slow down and Jóhannesson says that he is increasingly keen on retailers with a strong internet presence. “A lot of our focus is on e-commerce,” he says. “I strongly believe it will be a big part of our business quite soon. We are researching and spending a lot of money on it and some of our businesses are already doing 45% of their business online.” Jackson concurs and reflects of the previous MFI management team (MEP’s initial purchase): “As the UK market leader, not to own kitchens online was a big mistake. After our first year in charge we have focused on our online activities.”

However, not everyone agrees that e-commerce is the only maxim. Anselm van der Auwelant, the charismatic Belgian CEO of Spanish retailer Cortefiel Group, asserts that the dramatic expansion of the fashion retailer would have been impossible without private equity money and that physical stores still form the backbone of the company’s future growth.“There are two financial partners plus the retail operation in our agreement and the business plan remains all about growth,” says Auwelant. An instinctive retailer at heart Auwelant believes that growth potential in emerging Europe and Asia remains strong and that physical stores rather than the internet also remain the best route to market. “To me the internet is the shop window but I still believe nothing can replace the real experience. E-commerce is a bit like sex, nothing beats the real thing.”

Despite soaring year-on-year internet retail sales, the polarisation in retail performance is also about more than online versus in-store sales. The internet may be holding up better than the high street but the real split in consumer outlook comes in western versus eastern markets. China, India, Russia, south east and sub-continental Asia and central and eastern Europe are suffering few if any of the consumer crises of their west European and US counterparts and little wonder that the biggest private equity deal of the year to date has been the acquisition of Turkish supermarket group Migros Turk by BC Partners and Turkven for €1bn.

However, entry into the emerging markets through the private equity route is increasingly difficult, with no shortage of domestically produced cash waiting in the wings in the emerging market. Consequently, most would-be investors will probably be forced to team up with local, family run businesses and to use their investment to grow the businesses organically and through local acquisitions; making the prospect of a quick in and out remote. Yet it is not all bad news. Initial skepticism from the retail sector about the motives of private equity buyers, notably whether they would simply be asset strippers or experts at polishing a business up for the short term while damaging it for the longer run, has largely proved unfounded.

Bernie Brookes, CEO of Australian department store stalwart Myer, points out that in a consumer downturn the rigours of private equity can in fact revitalise operations. Brooks heads up one of Australia’s most venerable retail names and his department store group was extracted from conglomerate Coles Myer in June 2006 when Texas Pacific Group led a management and family buyout. “Myer represented about 10% of Coles Myer Group turnover and got about 10% of the time,” he reflects. “We introduced a 100-day plan, a turnaround phase from 2006 until 2010 and then a growth phase to 2014. We intend to move from 58 stores to 80-plus and we have reinvested in stores, in our people and in 2009 we will have a state-of-the-art flagship in Melbourne.”

Indeed in Australia a report published in May has challenged the view that private equity takeovers will continue to wane in the current climate, after a surge in private equity takeovers of high-profile Australian retailers in recent years, including Myer, Godfreys and Repco. Rather, the report argues that the high cost of credit is pushing private equity firms to restructure their deals rather than miss out altogether. The PricewaterhouseCoopers (PwC) retail outlook report also predicted that while there would be fewer deals involving companies at the top end of the market in the next 18 months, the focus would shift to mid-cap deals. “There’s still plenty of equity in the market, with 70% of private equity funds remaining uninvested. However, due to the credit crunch, new deals need to be structured with 6% more equity,” says PwC corporate finance partner Greg Keys.

What retailers also often offer is an attractive real estate portfolio, with the potential to unlock capital through sale and leaseback. John Hoffman, shareholder representative at RREEF Printemps, which owns Italian department store group La Rinascente and French retail group Printemps, reflects: “We wouldn’t look at a deal that didn’t involve a property play. That is part of what makes it stack up.” Tough times might just be the time to make a foray into the retail arena, reckons Henry Jackson. “In a downturn capital expenditure has to justify the investment against the leverage,” he says. “What private equity does is put discipline back into the business and in the current climate that is no bad thing.

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