Majestic Wines is to buy online competitor Naked Wines , appointing Naked Wines’ founder Rowan Gormley as its new chief executive, it announced this morning.
The £70m transaction will give Majestic the online and ecommerce skills of the social media-led pureplay, while Majestic will give Naked Wines a store network for its customers to collect their online purchases.
Majestic chairman Phil Wrigley described the deal as “transformational”. “Majestic’s distribution skills, a nationwide UK store network and customer service orientated knowledgeable staff, are a perfect fit with Naked Wines’ unique sourcing and selling model,” he said. “This acquisition will significantly accelerate the planned development of Majestic’s online capabilities whilst providing Naked Wines with a nationwide store network to allow a Click & Collect delivery option for its customers. In addition, this acquisition opens up attractive international markets, increasing our potential customer reach eightfold.”
The price tag of up to £70m includes £50m to be paid in cash on completion, while up to £20m will be paid in Majestic shares if certain conditions are met. German wine group WIV Wein International AG was the majority shareholder in the business, having invested in previous years to finance expansion into new markets.
Rowan Gormley (pictured) succeeds Steve Lewis, who left Majestic in February, as chief executive of the national wine business, and his senior team will also stay with the business. Gormley said: “The combination of Naked Wines and Majestic provides the very exciting opportunity to build a world-class wine retailer, serving customers who are looking for inspiration that the supermarkets cannot provide. This is great news for the customers, staff and suppliers of both businesses and will ultimately create significant shareholder value.”
The news came as Majestic said it would report pre-tax profits of about £21m in the year to March 31. Naked Wines reported sales of £74m in the year to December 31 2014, 40% up on the previous year. But it was loss-making at the bottom line, with a loss of £3.3m before earnings, tax, interest and asset writedowns (EBITDA). It has 300,000 customers in the US, UK and Australia, many of whom pay in regular sums to fund more than 130 winemakers.
In an email to Naked Wines’ customers this morning, Rowan Gormley said Majestic was the perfect partner since it gave Naked Wines the financial strength it needed in order to grow while giving “a solution to our biggest bugbear… delivery”. He said Naked Wines would remain the same business within a larger combined group. “It’s been an incredible journey since we set out six years ago and I hope you’re as excited about the next chapter as I am,” he said.
Jonathan Buxton, partner at Cavendish Corporate Finance, and who advised Naked Wines on the deal, said: “The combination of Naked Wines’ robust growth track record and Majestic’s market leading positioning make this transaction an excellent strategic fit for both companies. The enlarged Majestic Wine Group will benefit from new CEO Rowan Gormley’s outstanding experience and industry expertise and help the business capitalise on supportive trends in the wine sector and the fast-growing ecommerce industry, both of which offer excellent growth opportunities.”
He said he expected to see more mergers and acquisitions in the retail sector, as businesses look to acquire ecommerce or mobile expertise.
Investec analyst Kate Calvert recommended Majestic Wine shares as a buy this morning, commenting that the deal represented “the sort of radical thinking we were hoping would come out of the strategic review” and one that gave Majestic “growth opportunities beyond the UK.” She said: “We expect Mr Gormley to look to unlock Majestic’s online potential, improve its CRM, leverage its store network distribution and moderate store rollout plans.”
Our view: Since Naked Wines launched in 2008 it has always billed itself as a new kind of wine dealer, taking the burden and cost of marketing wine from the winemaker, and so enabling them to charge Naked Wines’ angel investors less for their wine. Social media has instead been used to great effect to review and rate wines. How much of that entrepreneurial outlook and approach Rowan Gormley will bring to the larger and more traditional Majestic Wine business remains to be seen. We’ll watch with interest.