The deal announced today to sell Phase Eight will have attracted lots of attention from a number of quarters. The valuation of £300m for a business posting EBITDA of £24m in the year to February 2013 looks generous. This is not to say Phase Eight is not a good retail brand – it certainly is, and has a solid management team. The main focus of interest in my view is a) what it says about the acquirer’s view of short to medium term trading prospects and b) that there maybe other deals to be done by PE owners of retail assets at maybe better prices than previously thought.
The purchasers of Phase Eight are Foschini, the South African fashion business, who are acquiring 85% while the management team will retain the remaining 15%. They clearly have great faith in Phase Eight’s international potential, given its relatively mature UK business (107 stores and 203 concessions) they will presumably buying overseas growth and particularly the potential to expand in Africa. Younger fashion brands from Europe like Zara, H&M, Top Shop and Mango are gaining traction there but they are all young brands. An older more mature brand like Phase Eight might be more challenging.
The deal is great news for TowerBrook Capital, the PE house which bought Phase Eight for £80m in 2008. There is a raft of PE that owns fashion brands and must be getting anxious about the unfolding economy and prospects for transactions. Timing is everything and given the short term economic outlook, there may not be a bandwagon to jump on.
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