U.K. retail has been hit with a slowdown as inflationary pressures leave consumers with less discretionary income to spend on apparel.
That means troubled retailers will find it harder to effect a turnaround, and those that are put up for sale could find valuations declining as M/A deals put sellers in the driver’s seat. Meanwhile, with a former treasury head installed as the new prime minister retailers will be looking for much-needed movement on business rates tax reform.
ABG nabs Ted Baker
“This uniquely British brand enhances our fashion portfolio and further reinforces ABG’s brand presence in the U.K., Europe and the Middle East,” ABG founder, chairman and CEO Jamie Salter said. “The purchase of Ted Baker is in line with our strategic focus on growing and diversifying the portfolio through the acquisitions of brands that originate from outside of the U.S.”
The men’s and women’s specialty retailer cut job when Covid struck and has struggled to stabilize the business ever since.
Earlier this year, the U.K. arm of American private equity firm Sycamore Partners made a non-binding unsolicited offer for the more than three-decade-old company. It walked away after raising its offer but those overtures set the stage for Ted Baker putting itself up for sale. ABG entered the bidding fray, but it too was said to walk away from a deal. While the reasons were unclear, Ted Baker in June said the termination of talks was “not linked to its due diligence review of the company.”
Sometimes a buyer will walk as a negotiating tactic, either because it is seeking better terms or a lower price. In the case of Ted Baker, price was believed to be a sticking point, mostly because over the summer inflation quickly rose in the U.K. In a world where interest rates are rising, asset prices usually decline to adjust for the rise in financing costs.
Sycamore was believed to have set a baseline offer valued at between 250 million pounds to 255 million pounds ($327.8 million to $334.3 million). At the time ABG backtracked on its offer, the purchase price was believed to be $200 million-plus, indicating a substantial haircut in valuation. By August, ABG and Ted Baker confirmed a 211 million pound deal ($254 million) was in place.
ABG said it will follow its proven playbook leveraging a global network of category experts to convert Ted Baker into a licensed business model.
“ABG is in discussions with leading operators in key regions to manage the manufacturing, physical retail, e-commerce and wholesale operations of the Ted Baker business,” it said.
Matalan Ltd. under bondholder control
Bondholders are effectively running the show at Matalan after the British fashion and home goods retailer struggled to find new financing in a tightening credit market.
The company is believed to have secured debt totaling about 350 million pounds ($412.5 million) due in January, with another 130 million pounds ($153.2 million) due a year later. Matalan has been trying to refinance its debt, but that deadline passed last Friday, when rescue bids were also said to be due.
In August, Matalan founder John Hargreaves was trying to maintain control of the troubled fashion firm he launched in 1985. One month later, Hargreaves quit to avoid any conflicts of interest as he planned a bid for the company. Key lenders at that time agreed to put the brand up for sale. But a group of junior debt holders wants to seize control of the company, sources said.
In addition to Hargreaves, American private equity firm Elliott Management is also believed to be involved in the bidding process.
Footfall and UK economy
Political uncertainty after former Prime Minister Liz Truss’ resignation following a failed tax-cutting budget drove a 3.7 percent footfall decline in some parts of the U.K. from the prior week.
This suggests the cost-of-living crisis is hitting household incomes, footfall data research firm Springboard said on Monday. High streets saw a sharp fall in consumer activity, down 3.3 percent from a week ago, it added.
On Tuesday, former Chancellor of the Treasury Rishi Sunak was named U.K.’s 57th Prime Minister, succeeding Truss. Besides putting together a new cabinet, one of his first priorities will be putting together a mini-budget.
During his tenure as finance minister, Sunak had been reviewing the business rate system, which many in retail described as burdensome in light of the shift in consumer purchases from brick-and-mortar to online. In October 2021, his budget presentation gave a 50 percent discount to hard-hit businesses, including retailers, for one year. At the time Sunak said he could try to ease the burden, but couldn’t abolish the tax, which adds 25 billion pounds ($34 billion) to the treasury’s coffers.
Sunak and health secretary Sajid Javid, two of the most senior cabinet members under former Prime Minister Boris Johnson, resigned in July after they said they lost faith in the leadership abilities of Johnson, who stepped down a few days later.