JD Sports is set to buy Footasylum in a deal that values the retailer at about £90m – and says the move will provide “significant operational and strategic benefits” to the enlarged company.
Footasylum is recommending the 82.5p per share offer, which represents a significant discount to the £171.3m the retailer was valued at when it floated on the stock exchange in November 2017. Then it sold online and through 61 stores; today it has 70.
The two retailers already have a lot in common. Footasylum was founded in 2005 by David Makin, who previously co-founded JD Sports with John Wardle. Footasylum’s current executive chairman Barry Bown, was previously chief executive of JD Sports for 14 years, while Makin’s daughter Claire Nesbitt is Footasylum’s chief executive.
While Footasylum’s size and multichannel capability has earned it a Top100 place in IRUK Top500 research, the retailer warned on its profits as discounting in a highly competitive market boosted sales at the expense of profits. In results for the first half of the current financial year, to August 25, revenue reached £98.6m. That’s 15.4% up on the previous year. But the retailer also made a statutory pre-tax loss of £2.5m, contrasting with profits of £1.7m a year earlier.
At the time, executive chairman Barry Bown said it had been a difficult trading period for Footasylum, thanks to “tough conditions on the high street and some delays in our programme of new store openings and upsizes ahead of the peak trading period.” Those challenging conditions continued, according to a January 8 trading statement, and the retailer responded as competitors discounted through higher than expected levels of promotional and clearance discounting. At that time the retailer warned that its profits would not meet expectations. Today’s news of a sale comes after the end of Footasylum’s current financial year on February 23, but before its full-year results are published.
JD Sports Fashion is a Leading retailer in IRUK Top500 research. It sells online and via more than 2,400 stores trading under a number of retail names, including Blacks, Millets, Size and Go Outdoors, in 18 countries. Like Footasylum, it takes a multichannel approach to retail: in today’s offer it said that it “embraces the latest online and in-store digital technology, providing it with a truly multichannel international platform for future growth”. Together, said JD Sports in its statement, the enlarged group would be able “to take advantage of business opportunities which are not readily available to either JD or Footasylum on a standalone basis”. Added to that, it said, Footasylum targets a slightly older consumer than JD, while “JD also believes that there will be significant operational and strategic benefits from a combination of the two businesses”.
Peter Cowgill, executive chairman of JD Sports, said: “We are pleased to make this offer for Footasylum, which is very complementary to our existing businesses in the UK. We believe that there will be significant operational and strategic benefits through the combination of the very experienced and knowledgeable management team at Footasylum and our own expertise.”
Barry Bown of Footasylum, said: "The Footasylum board has concluded that the offer represents the best strategic option for Footasylum and its employees. It believes the offer fairly reflects Footasylum’s current market position and prospects on a standalone basis and, as such, that Footasylum shareholders should be given the opportunity to realise value from the offer.”
Edison Investment Research analyst Paul Hickman said that the deal appeared to be a done deal.
“The implied valuation of £90.1m for the company is a EV multiple of 6.8 times the historic EBITDA of £12.5m for the year to February 2018 (taking net cash of £4.5m at August 2018),” he said. “However, it is 30 times the market forecast of £2.8m for the year to February 2019 and 16 times the £5.4m for February 2020.
“With 63% irrevocable undertakings this looks like a done deal.”
Addleshaw Goddard is advising JD Sports Fashion on the deal.