Acquisitions Archives

Markross121_ November 7, 2018 No Comments

Retail Mergers and Acquisitions Rise by 15% as Businesses Try to Combat Falling Sales

The number of retail sector mergers and acquisitions has grown by 15 per cent in the last year as companies try to make up for struggling sales, a new study reveals.

Figures compiled by law firm RPC show there have been 37 retail mergers and acquisitions (M&A) deals in the year to 31 March, compared with 32 in 2016-17.

RPC said the recently announced Asda and Sainsbury’s merger was a good example of the recent trend for businesses in the food side of the retail sector to “add economies of scale to make up for slowing organic sales growth”.

Firms are also favouring M&A over flotations, due to weak demand from investors. Selling up to a competitor is seen as a more secure way for existing investors to exit a smaller retailer than an IPO which could be cancelled at any point “due to short-term volatility or poor sentiment towards the sector”.

“Through mergers such as Asda and Sainsbury’s, market leaders are looking beyond all the hype about the ‘meltdown of the high street’ and getting on with building breadth of offering and scale,” said RPC corporate partner Karen Hendy.

However, while the number of deals has jumped, the overall value of those transactions has fallen 16 per cent to £3.7bn, from £4.3bn the year before. Ms Hendy said: “It is important that sellers and creditors are sensible over the prices they are expecting from M&A deals in the current climate.”

Meanwhile, RPC said there is still interest in buying distressed retailers’ assets but buyers are looking for substantial discounts, and the number of retailers entering insolvency has risen by 7 per cent in the last year.

UK M&A deals announced in 2017-18 include:

The Co-op’s approach for Nisa, valued at £143m
Tesco Opticians’ acquisition by Vision Express owner Grandvision
Multiyork Furniture’s acquisition by DFS

Bestival music events firm bought for £1.1m

The Bestival and Camp Bestival music festivals have been snapped up by a multi-millionaire Dorset entrepreneur just days after a collapse into administration.

Richmond Group, controlled by the loan broker James Benamor, is buying the festival business after offering £1.1m for Bestival’s assets and brand. Richmond had lent Bestival Group £1.6m in February last year.

Benamor founded Amigo Loans, a Bournemouth-based company that offers quick guarantor-backed loans, which was floated on the stock exchange in July. The business is valued at more than £1bn and Benamor’s Richmond Group has a stake of 61%.

Julie Palmer, of the advisory firm Begbies Traynor, who was appointed administrator on 20 September, said she had received more than one offer for the business but Richmond’s was the best bid.

Bestival was launched in 2004 by DJ Rob Da Bank and this year was headlined by the performers Chaka Khan, Grace Jones and Thundercat. It began on the Isle of Wight but relocated to Lulworth Castle in Dorset in 2017.

Its sister festival, Camp Bestival, which launched in Dorset in 2006, is aimed at a family audience and this year featured Simple Minds and Rick Astley alongside Peppa Pig and Paddington.

In a statement Benamor said: “We have been fans and supporters of Bestival since the beginning. Our children have grown up with wonderful memories of these festivals. Bestival is an example of Dorset being world class and we are keen to ensure that this fantastic institution goes on to delight families and local businesses for many years to come.”

On the Camp Bestival website it said that tickets for the 2019 festival remained valid and there was “no reason to believe Camp Bestival won’t go ahead as planned”.

Hundreds of 2018 Camp Bestival attendees are still hoping for a refund after the festival was forced to close a day early in July because of poor weather. The company said the cancellation of the festival’s Sunday line-up this year was not the reason for its financial difficulties but said it had not been “a positive factor for the business”.

Richmond Group said that under the terms of its offer all Camp Bestival 2019 tickets sold so far would be honoured.

Asda says 2,500 jobs at risk before Sainsbury’s merger

Asda has said 2,500 jobs are at risk as the supermarket giant embarks on a fresh round of cost-cutting ahead of its proposed merger with rival Sainsbury’s.

The Walmart-owned grocer is looking to reduce costs across its store operations, with staff working in its bakeries, petrol stations and back office among those under scrutiny. The retailer is also considering closing counters used by customers to return items from its George clothing ranges.

“In a competitive retail market, where customers rightly expect great value and ease of service, we must always look at how we can work more quickly and efficiently for them – and inevitably, that means we need to consider changing the roles we need our colleagues to do or the hours needed in particular parts of our stores,” said Asda in a statement.

The proposals are thought to include combining back office functions such as administration, making some its petrol stations self-service, and reducing the hours of bakery staff and those employed as “front-end hosts”. No redundancies are expected before Christmas.

KKR stock surges after first earnings as a corporation

KKR’s conversion to a corporation is paying off for stockholders.

The New York-based buyout shop announced its 3Q earnings on Thursday, including after-tax distributable earnings of $496.7 million, or 60 cents per share, a YoY increase of 21.3% and about in line with analyst predictions. The firm also reported $640.2 million in profit attributable to shareholders, up more than 300% YoY. KKR’s stock responded positively, closing Thursday up more than 6% on a day the market rebounded from a recent sell-off, thanks in part to several strong earnings reports across the corporate spectrum.

KKR changed its tax structure from a partnership to a corporation on July 1 in hopes of making its shares more accessible on indices. As a result, the firm has stopped reporting its economic net income, an opaque metric that publicly traded peers such as Blackstone, The Carlyle Group and Apollo Global Management use to grade performance.

So far, KKR management likes the results.

“We’re encouraged by the earnings we are having,” said Craig Larson, the firm’s head of investor relations. “We feel like we’re seeing an increase in the breadth of our shareholders.”

Co-COO and co-president Scott Nuttall took away positives both from KKR’s results and the wider market downturn, saying the firm will be able to grow at a faster pace if valuations drop.

“We saw this coming out of the financial crisis a decade ago,” Nuttall said. “We can also buy back our stock at lower prices. From our seat, our stock is worth even more today and our firm has even more opportunities and better prospects than a month ago.”

‘Fortnite’ creator valued at $15B with mega-round from headline investors

Epic Games is the developer of “Fortnite,” which might very well be the most popular video game in the history of the world. The company had ascended to the pinnacle of the entertainment industry without much in the way of help from Silicon Valley—until now.

On Friday, Epic announced a whopping $1.25 billion in funding from a group of VC and PE luminaries that includes KKR, Kleiner Perkins, ICONIQ Capital and Lightspeed Venture Partners, with The Wall Street Journal reporting a valuation of $15 billion—a figure that’s in line with Juul Labs, another VC-backed creator of a product that’s wildly popular among millennials and Generation Z. Other investors in Epic’s round include aXiomatic—an e-sports company that raised a reported $26 million of its own earlier in the week with backing from Michael Jordan and the family office of The Carlyle Group founder David Rubenstein—and Vulcan Capital, the firm founded by Paul Allen.

Previously, Epic’s most prominent public financing was the reported sale of a 48.4% stake to Tencent in 2013 for $330 million. Disney and Endeavor are the company’s other existing investors.

While “Fortnite” may be the company’s current cash cow, it’s far from the only aspect of Epic’s portfolio that would appeal to investors. Based in Cary, NC, Epic is also the creator of the highly regarded “Gears of War” and “Infinity Blade” series. And the company is significant in the video game space beyond the titles that it’s developed itself. Epic is also the business behind the Unreal Engine, a pioneering piece of software that’s used by dozens of other developers to create games of their own, including hits like “Bioshock” and “Mass Effect.”

Somewhat surprisingly, perhaps, the amount of VC investment in the US entertainment software space has been trending down for several years now, ever since reaching an annual high of 147 transactions in 2012, per data. But this year is holding steady. Firms executed 81 investments in the sector through the first three quarters of 2018, on pace to equal last year’s total of 108.

LadBible moves closer to acquiring fellow viral publisher Unilad

LadBible has moved closer to taking control of rival Unilad after administrators handling the fire sale of the collapsed viral Facebook publisher informed several bidders they were out of the running.

Unilad’s administrator, Leonard Curtis, has been informing about six formal bidders that an agreement has been reached to enter an exclusivity period with one party.

A spokesman for LadBible would not confirm whether it was still involved in the process. If the company is successful it will have been chosen despite not having submitted the highest bid.

LadBible is thought to have submitted an offer totaling about £12.5m, comprising £7.5m plus a £5m credit for the Unilad debt that was owed to its founder, Alex Partridge, which it acquired after the administrator was appointed last Thursday.

This put LadBible in a commanding position. The highest bid, thought to be in the region of £20m, is understood to have been rejected in part because it was considered more financially complex and unlikely to be finalised quickly enough for Unilad to keep running smoothly. Leonard Curtis did not return a request for comment on the bidding process.

The shotgun administration, giving potential buyers just days to submit bids, has been heavily criticised by a number of the bidders. One is known to have appointed a law firm to take advice on the process.

Bidders that have been publicly named include Manchester-based Social Chain, the smaller-scale Facebook publisher The Hook, the social media agency Goat and Unilad’s existing financial backer Linton Capital – whose managing partner, David Sefton, is Unilad’s interim chief executive – in conjunction with the online media group Jungle Creations.

One bidder said the bizarre nature of the fight for Unilad meant the battle was not over yet, adding: “Until I see an official statement confirming a deal is done, anything could still happen”.

A report has named Unilad as the top Facebook publisher for September. According to the analytics company NewsWhip, Unilad.co.uk achieved 32.5m likes, shares and comments on its content during the month, ahead of Ladbible.com (28.9m) and Foxnews.com (27.8m).

Last week Unilad went into administration putting hundreds of jobs at risk, after its parent company, Bentley Harrington, revealed debts of more than £6m – including £1.5m to HMRC.

The company, which began life as a student “banter” page, is one of the world’s biggest publishers of viral content. Hundreds of employees are based at its headquarters in Manchester and it has secondary offices in east London and New York.

Many viral publishers have struggled to translate their enormous reach into a profitable business model owing to the high cost of making bespoke native ads. Sources in the advertising industry suggested many agencies had cut back their dealings with Unilad before Thursday.

Unilad’s co-chief executive Sam Bentley left the company in June after unspecific allegations of historical misconduct against it, and Unilad said other staff had been disciplined as a result of an internal investigation.

Unilad shares a founder with LadBible but is now entirely separate from its fellow Manchester-based business. Last week, financial filings at Companies House showed LadBible’s revenues rose by a quarter to £15m last year, as pre-tax profits almost doubled to £3.7m.

Blackstone cashes in on Versace’s $2.1B sale to Michael Kors

From real estate to retail to financial services, Blackstone’s mammoth portfolio of businesses and buildings reaches into about every industry imaginable. But the New York-based buyout firm ventured beyond its extensive comfort zone in 2014, when it paid €210 million (about $287 million at the time) for a 20% stake in luxury fashion brand Versace, valuing the Italian company at €1 billion.

Four-and-a-half years later, the firm founded by Stephen Schwarzman is poised for a nice return on that investment. On Tuesday, fashion brand Michael Kors agreed to purchase Versace for an enterprise value of €1.83 billion, or $2.12 billion, with Blackstone exiting its entire investment as part of the transaction. That price would seem to value Blackstone’s 20% stake at some $424 million.

Stock in Michael Kors (NYSE: KORS) dropped more than 8% Monday, when reports of a deal first emerged, before inching back up 2% on Tuesday. As part of its takeover, the company announced plans to open roughly 100 new Versace stores, increase the brand’s online offerings and expand its reliance on accessories and footwear, all in an effort to grow Versace’s annual revenue from $850 million to upward of $2 billion. Michael Kors, which will be renamed Capri Holdings upon the closing of the transaction, also hopes to shift a portion of Versace’s portfolio away from North and South America and into Asia.

It’s been a good year for Blackstone when it comes to high-profile exits. In June, the firm agreed to sell 15.8 million shares of hotel chain Hilton Worldwide for some $1.3 billion, per Bloomberg. Overall, it’s believed the firm realized about $14 billion in profit from its initial 2007 investment in Hilton, marking what’s reportedly the most profitable exit in private equity history.

That news came a month after the buyout divisions of Blackstone and Goldman Sachs agreed to sell Ipreo, a provider of financial analytics focused on the stock market, to data firm IHS Markit for $1.86 billion. Ipreo’s valuation nearly doubled from when the two firms bought the company for some $975 million in 2014.

Bain Capital, KKR to back hardship fund for Toys R Us workers

When Toys R Us closed its US operations at the end of June, the famed toy retailer laid off some 33,000 workers.

Three months later, storefronts across the country where the company used to reside remain empty. And laid-off employees are still waiting for the roughly $75 million in combined severance pay they were once promised by management.

But that could soon change. Bain Capital and KKR have held discussions with workplace advocacy group Organization United for Respect and former Toys R Us employees about setting up a hardship fund to pay back that full $75 million severance figure, with an announcement “hopefully coming soon,” according to a source close to the situation. Late Friday, meanwhile, The Wall Street Journal reported that Bain Capital and KKR are working on a $20 million severance fund.

Bain Capital and KKR didn’t respond to requests for comment.

Setting up this type of mea culpa fund would be a highly unusual move for a private equity industry that typically aims to maximize profits at all costs. But KKR and Bain Capital both received significant blowback from both the public and LPs after Toys R Us suffered a swift demise following a disastrous holiday sales season.

How did we get here?

Bain Capital, KKR and Vornado Realty Trust took Toys R Us private for about $6.6 billion in 2005. The deal reportedly saddled the company with about $5 billion in debt, a total that became impossible to pay down in part because of the rise of online retailers such as Amazon and Walmart. Meanwhile, the lack of available capital made it difficult for the business to adjust to a retail industry that began producing more revenue from ecommerce.

Toys R Us eventually filed for bankruptcy in September 2015, with plans to either find a buyer or restructure the company’s debt load. But lenders including Angelo Gordon & Co. and Solus Alternative Asset Management, a pair of New York-based investors, ultimately decided to shut down the company’s US operations.

In August, both firms sent a letter through law firm Wachtell, Lipton, Rosen & Katz explaining that they “do not believe there is a sound basis to claim that Toys R Us secured lenders should make additional financial contributions for the benefit of employees or other unsecured creditors.” The letter cited the fact Angelo Gordon and Solus had already contributed to a $450 million bankruptcy loan, helped implement a compensation plan that paid out “millions of dollars” to employees and gave Toys R Us additional time to find a buyer after it defaulted on the loan, among other concessions.

Oaktree Capital Management, Highland Capital Management and Franklin Mutual Advisers were also among the secured lenders that opted for liquidation, but none have agreed to contribute to the hardship fund, according to a source. Vornado Realty Trust, meanwhile, has not responded to requests to make a financial contribution.

The outrage over the whole episode has poured over to Capitol Hill. In July, 19 Democratic members of Congress sent Toys R Us’ former owners an informal letter asking about their business practices. And this past week, a group of the store’s former workers in New Jersey lobbied the state’s investment council to pull its $300 million investment in Solus. In the meantime, former Toys R Us employees have lobbied LPs in Texas, Oregon, North Carolina, Virginia, Arizona and Minnesota with investments in the lenders to ask they pay back some of the severance.

Elon Musk, John Flannery hit by shake-ups at Tesla, GE

Whether it’s a company that became an icon of the 20th century or one that hopes to do the same for the 21st, it’s been a bad past few days to be the leader of a multibillion-dollar business.

Elon Musk’s self-created fiasco with US regulators came to a dramatic head over the weekend, as the Tesla founder reached a settlement with the SEC that calls for him to step down as chairman of the electric automaker for at least three years and to pay a $20 million fine. Musk will remain CEO, however, a role that would have been in doubt if Musk had forgone a settlement and decided to battle the SEC, which officially filed suit against him late last week.

GE, meanwhile, announced on Monday the unexpected removal of John Flannery from the CEO role after just over a year on the job, with board member Larry Culp taking over as both CEO and chairman. The ouster comes several months after GE revealed falling profits driven by struggles in its power division, and amid talks of splitting up the company and a months-long decline in its stock price.

In some ways, the departures couldn’t be more different. Tesla is Musk’s baby, and the extremely close association between company and creator has been a major factor driving years of investor excitement in the innovative automaker. It’s difficult to think of one and not the other—even if Musk’s erratic behavior in recent months has perhaps brought into question whether that’s a good thing.

Flannery, meanwhile, was brought in last June to assume control of an aging empire from longtime CEO Jeff Immelt, who in turn had taken the reins from legendary leader Jack Welch in 2001. For a company that traces its roots to Thomas Edison and JP Morgan, it was perhaps too easy to think of Flannery as just another cog in the machine, the latest leader with a generic four-letter name that starts with a J.

For both companies, though, the immediate returns from the moves were positive. Stock in Tesla (NASDAQ: TSLA) shot up more than 16% on Monday, gaining back the losses it recorded last week after the SEC’s lawsuit became public—although surely part of that boost was due to a promising report released Monday regarding the production of Tesla’s Model 3. Shares of GE (NYSE: GE), meanwhile, opened Monday up some 15% before settling back to a more modest 7% increase.

Radio giant Sirius acquires Pandora Media in $3.5bn deal

Two US companies are set to create the world’s largest audio entertainment business after radio giant SiriusXM announced it will pay $3.5bn (£2.7bn) for streaming service Pandora Media.

The all-share deal, which will be finalised in the first half of next year, will create a $7bn entity.

Shares in the target rose 18.4 per cent to $10.75 in pre-market trading, above Sirius’ implied price of $10.14.

The deal gives Sirius better mobile strength, stronger digital presence, and access to Pandora’s ad capabilities.

SiriusXM chief executive Jim Meyer said the deal “represents an exciting next step in our efforts to expand our reach out of the car even further”.

“Through targeted investments, we see significant opportunities to drive innovation that will accelerate growth beyond what would be available to the separate companies, and does so in a way that also benefits consumers, artists, and the broader content communities,” he added.

Shares in Pandora climbed 37.1 per cent in August after better-than-expected second quarter results, posting a 2.1 per cent year-on-year revenue increase to $384.8m.

Discounting the divestment of Ticketfly to Eventbrite for $200m, revenues increased 12 per cent.

Pandora’s declining advertising income was offset by a 67 per cent increase in subscription revenue.

Sirius already held a 15 per cent stake in Pandora following its $480m investment in the company earlier this year, replacing a $150m investment from private equity firm KKR.

Sirius is advised by Allen & Company and Bank of America Merrill Lynch. Centerview, LionTree and Morgan Stanley are advising the sell side.

Both boards have unanimously approved the transaction, and it awaits the go-ahead from Pandora shareholders.

Sirius expects to count over $5.7bn in 2018 revenues, with adjusted earnings of $2.2bn before tax, depreciation and amortisation.

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