Brait to Buy 90% of U.K. Retailer New Look for $1.2 Billion

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New Look Fashion Store
New Look Group Ltd. said in February it’s equipped for an initial public offering amid renewed speculation that its private-equity holders are seeking an exit. Photographer: Simon Dawson/Bloomberg

Brait SE agreed to buy U.K. women’s clothing retailer New Look for 780 million pounds ($1.2 billion), the second acquisition in a month for South African billionaire Christo Wiese’s investment company.

Brait will buy about 90 percent of New Look, mostly from private-equity firms Permira and Apax Partners, the investment company said in a statement Friday. New Look’s management and the family of founder Tom Singh will own the rest.

Brait is diversifying out of its traditional market of South Africa after raising 26.4 billion rand ($2.2 billion) by selling a stake in African retailer Pepkor Holding Pty Ltd. last year. Wiese, a 73-year-old retail magnate who owns 35 percent of Brait, gains a retailer that sells dresses for as little as 3 pounds and lace underwear from 2 pounds at more than 800 stores, two-thirds of which are in the U.K.

“Christo Wiese has been able to drive quite a hard bargain,” said Nick Bubb, an independent retail analyst in London. “Apax and Permira were desperate to sell. Whether New Look’s recent revival can be sustained is another matter, given the surplus capacity in the U.K. fashion market.”

Brait shares rose as much as 4 percent in Johannesburg. They have gained 20 percent this year, valuing the company at about 49 billion rand. That compares with a 9.1 percent increase on the FTSE/JSE Africa All-Share Index.

Fake Fur

The retailer has debt of 1 billion pounds and the acquisition price gives the company an enterprise value, or the sum of equity and debt, of 1.9 billion pounds. The most expensive womenswear item on its website is a fake-mink-fur-lined coat for 89.99 pounds.

Wiese began working in retail at Pep Stores, a retailer that focused on rural areas in Africa with few clothing shops. With a 4,000 hectare (9,884-acre) winery that’s a 45-minute drive east from Cape Town, Wiese is the fourth-richest South African with a personal fortune of $7 billion, according to the Bloomberg Billionaires Index.

Wiese said last month Brait had $2 billion to spend on deals after it agreed to pay 682 million pounds for 80 percent of British health-club provider Virgin Active.

Equity Exit

New Look said in February it was ready for an initial public offering amid speculation that Apax and Permira were seeking a buyer. The private-equity companies backed Singh’s 2004 buyout of the retailer, which postponed IPO plans in 2010 amid weak consumer confidence.

The chain’s earnings excluding one-time items were 211 million pounds in 2014 and revenue was 1.4 billion pounds. Earnings for the 12 months through March are expected to be released on June 2.

“The Ebitda multiple paid is relatively low but New Look’s rent obligations are on the high side, which makes the price of the acquisition a realistic one,” said Charles Allen, an analyst at Bloomberg Intelligence. “The strategy is to grow New Look outside of the U.K., which implies the U.K. will become slightly less important in the scheme of things.”

Brait said New Look has strong prospects in France, Germany, Poland and China. The company also sells via its online platform and delivers worldwide for free on orders of more than 55 pounds.

South African shopping chains struggled last year as unemployment of about 25 percent, prolonged strikes and high levels of personal debt contributed to a contraction in household incomes.

“The South African retailers are not seeing as much opportunity locally as they were two or three years ago,” Kyle Rollinson, an analyst at Avior Capital Markets, said by phone. “The U.K. presents a stable market that is taking off in terms off a value offering and New Look’s expansion in Eastern Europe and China is promising.”

China Push

The retailer plans to have as many as 80 Chinese stores by the end of the financial year, Chief Executive Officer Anders Kristiansen said by phone. The retailer exited Russia last year due to political turmoil.

“China is doing very well for us and after 12 to 13 months of trading, the stores are already profitable,” Kristiansen said. “It’s a massive opportunity.”

The company will fund the purchase using facilities and cash on hand, Brait said. The transaction isn’t subject to regulatory approvals and is due for completion on June 25, it said. Rand Merchant Bank and Nomura International Plc advised Brait on the acquisition.

“We’re in the business of finding good companies to invest in that have a good strong base, a good strong platform that tick the boxes for us in the sense of double digit Ebitda growth,” Brait’s South Africa Chief Executive Officer John Gnodde said by phone. “And importantly that we can partner with over the long term.”

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