UK retail has been hit by a slowdown as inflationary pressures leave consumers with less discretionary income to spend on clothes.
That means troubled retailers will find it harder to pull off a turnaround, and those that are put up for sale could see declining valuations as M&A deals put sellers in the driver’s seat. Meanwhile, with a former chief treasury installed as the new prime minister, retailers will be looking for a much-needed move on business rate tax reform.
ABG catches Ted Baker
“This unique British brand enhances our fashion portfolio and further strengthens the ABG brand presence in the UK, Europe and the Middle East,” said ABG Founder, Chairman and CEO Jamie Salter. “The purchase of Ted Baker is in line with our strategic focus on growing and diversifying the portfolio through acquisitions of brands that originate outside of the US.”
The men’s and women’s specialty retailer went out of business when the coronavirus hit and has struggled to stabilize business ever since.
Earlier this year, the UK arm of the US private equity firm sycamore partners made a non-binding offer unsolicited by the company of more than three decades. He walked away after making his offer, but those proposals set the stage for Ted Baker to be put up for sale. ABG entered the fray of offers, but was also said to be walking away from a deal. While the reasons were unclear, Ted Baker said in June that the termination of the talks was “not linked to his due diligence review of the company.”
Sometimes a buyer will walk as a negotiation tactic, either looking for better terms or a lower price. In the case of Ted Baker, price was believed to be a sticking point, mainly because during the summer inflation rose rapidly in the UK. In a world where interest rates are rising, asset prices often decline to adjust for rising financing costs.
Sycamore was believed to have set a benchmark offer valued at between £250m and £255m ($327.8m to $334.3m). At the time ABG backed down on its offer, the purchase price was believed to be more than $200 million, indicating a substantial haircut in valuation. In August, ABG and Ted Baker confirmed a 211 million pound ($254 million) was in place.
ABG said it will follow its proven playbook by leveraging a global network of category experts to build 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 the control of the bondholders
Bondholders are effectively running the show at Matalan after the British fashion and home goods retailer struggled to find new financing in a tight credit market.
The company is believed to have secured debt for a total about 350 million pounds ($412.5 million) due in January and another 130 million pounds ($153.2 million) due a year later. Matalan has been trying to refinance his debt, but that deadline expired last Friday, when bailout offers were also said to be due.
In August, Matalan founder John Hargreaves was trying to maintain control of the ailing fashion house he launched in 1985. A month later, Hargreaves resigned to avoid any conflict of interest as he planned a bid for the company. Key lenders at the time agreed to put the brand up for sale. But a group of junior debt holders wants to take control of the company, the sources said.
In addition to Hargreaves, US private equity firm Elliott Management is also believed to be involved in the bidding process.
Footfall and UK economy
Political uncertainty following the resignation of former Prime Minister Liz Truss following a failed tax cut budget led to a 3.7 percent decline in parts of the UK from the previous week.
This suggests the cost-of-living crisis is taking a toll on household income, data research firm Springboard said on Monday. High streets saw a sharp drop in consumer activity, down 3.3 percent from a week ago, she added.
On Tuesday, former Chancellor of the Exchequer Rishi Sunak was appointed as the UK’s 57th Prime Minister, succeeding Truss. In addition to putting together a new cabinet, one of his first priorities will be putting together a mini-budget.
During his tenure as Minister of Finance, Sunak had been checking the merchant fee system, which many in retail described as onerous in light of the shift in consumer purchases from brick-and-mortar stores to online purchases. In October 2021, its budget filing gave hardest-hit businesses, including retailers, a 50 percent discount for one year. At the time, Sunak said he could try to ease the burden, but he 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 members of former Prime Minister Boris Johnson’s cabinet, resigned in July after they said they had lost faith in Johnson’s leadership abilities, who stepped down a few days later.