Deals Review – April 2016

In partnership with the Business Desk, several of our experts will comment on significant deals every month. For April, senior solicitor and retail expert, Mark Jones comments on Poundworld’s recent activity including its acquisition of former Brantano stores as well as the IGD’s forecast for the discount sector in the coming years.

When the going gets tough, the tough get going. I use that phrase because this month saw Poundworld snap up around 20 former Brantano stores after the shoe retailer went into administration. Of particular interest is the fact that private equity business Alteri, which put Brantano into administration, bought back the business almost immediately, except for around 58 underperforming stores.

It is not really new ‘news’ to tell you the discounters are on the march. However, which of the discounters manage to profit in the long term from consumers’ love of all things value will depend on a number of factors. There are serious challenges ahead, including the increased costs which come with the National Living Wage.

IGD research suggests the discount market will grow by around 10 per cent by 2019, after experiencing 106 per cent growth over the past five years. This illustrates that the rate of growth is slowing dramatically, and is even more acute in the non-grocery sector. Recent trading results from Poundworld’s LSE listed competitor, the aptly named Poundland, showed growth slowing from 18 per cent in Q1 2015 to 4.1 per cent in Q1 2016.

Poundworld does have a strategy for the coming years, however. In May 2015 it was announced that US private equity firm TPG spent £150m acquiring a majority stake in the retailer and – shortly after – the business unveiled its 524,000 sq ft distribution centre, which was followed by the announcement in July 2015 that it intended to add another 200 stores to its portfolio. Now, Poundworld can point out that its plans are falling into place as it shrewdly adds a further 20 stores to its portfolio.

The new distribution centre will service the additional outlets recently purchased from the administrators of Brantano and boost efficiency as the business expands. Fighting off rumoured competition from businesses such as Carpetright, Tapi and Pets at Home, the snapping up of 20 former Brantano stores means the business has added 55 stores to its portfolio in the last 10 months. Chris Edwards and TPG have the (Pound)world at their feet with this acquisition.