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JD Sports Looking to Pad M&A War Chest

Fresh on the heels of its Shoe Palace acquisition last month, JD Sports Fashion is setting the stage for more deals in 2021.

“The Board confirms that it is exploring additional funding options with a view to increasing its flexibility to invest in future strategic opportunities and that this may involve a non pre-emptive equity placing,” JD Sports said on Tuesday.

Unlike nonpreemptive shares, preemptive rights allow shareholders to buy additional shares before they are available to the general public. U.K. lawyers from Macfarlanes, in a post on Lexology, noted that most premium listed public companies can issue up to 5 percent of their current share capital for cash on a non-preemptive basis, and can increase that by another 5 percent for acquisitions or specified capital investments.

The confirmation was a nod to recent speculation that the company was considering an equity capital raise. Sky News on Monday said that JD was looking to raise about 400 million pounds ($549.1 million) in an equity placement that could launch as early as this week.

The raise would essentially replace the $325 million in cash spent to acquire U.S. shoe retailer Shoe Palace in December. That deal was funded through cash on hand, and included the issuance of a 20 percent stake—valued at $356 million—in the U.S. subsidiary to four brothers from the Mersho family, bringing the total value of the deal to $681 million.

JD Sports has been on the hunt for acquisitions to expand its portfolio. In 2019, it acquired U.K. menswear brand Pretty Green out of administration for 400 million pounds (roughly $535 million at 2019 exchange rates). Regulatory approval is still pending on its 90 million pound ($123.5 million) purchase of Footasylum in March 2019, a deal that has been mired in legal proceedings over anti-competition concerns. And it also considered bankrupt Debenhams and Arcadia Group.

JD Sports earlier this month raised its full-year guidance following positive demand in the second half to date.