Big name retailers mull over going public

The Good GuysDespite the volatility of the Australian Stock Exchange in the past 12 months, public floats are on the whiteboards for a number of retailers looking to future growth.

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Trade sales, mergers and acquisitions in the retail sector have gone quiet, effectively limited to acquisitions of distressed chains such as Koko Black, Fusion Retail Brands and Noni B.

Private equity firms and a handful of retailers continue to spruik an interest in acquiring other retailers and have no doubt been running a ruler over some prospects, but no deals have eventuated.

With franchising an effective no go zone for non-food retail businesses, retailers are left with few options to fund growth or to pay out private shareholders keen to retire their investments.

The interest in public floats has been heightened by the success of several retail chains that have listed on the Australian Stock Exchange with positive results.

The successful relative newcomers to the bourse include Adairs, Beacon Lighting and Baby Bunting. Three other retailers have floated as public companies with less flattering results in the past three years in Dick Smith, Lovisa and Godfreys.

Dick Smith will close its doors on May 3 after a spectacular crash that led to the company being placed in administration a little over two years after being floated on the Australian Stock Exchange by private equity owners, Anchorage Capital.

The well-documented float and crash are currently being examined by the Australian Securities and Investments Commission after the retailer burned through its capital and ran up debts of around $400 million.

The problems for Godfreys and Lovisa are far from terminal, although both retailers have some work to do on their business models to ensure a stable growth platform and sustainable profitability.

The new crop of retailers mulling over a public float include The Good Guys, Michael Hill International and Terry White Chemists.

The Shaver Shop has also considered going public and Mitre 10 looms as another contender if it is able to acquire the Home Timber and Hardware business from Woolworths as part of the Masters Home Improvement exit.

The Good Guys

The Good GuysThe Good Guys has had an ‘open to offers’ sign above its door for more than three years, with the Muir family keen to sell down or sell out their interests in the whitegoods, electrical and home entertainment chain, which commenced trading in Melbourne’s northern suburbs in 1952.

The Good Guys currently has around 100 stores throughout Australia and estimated sales of about $2.2 billion and earnings before interest and tax of about $100 million.

Along with JB Hi-Fi, Woolworths and Wesfarmers, the American retailer, Best Buys, mulled over the acquisition of The Good Guys when the Muir family first intimated that they were prepared to sell the business five years ago. It is also understood that there was interest from private equity firms, however all of the parties baulked at a price tag of around $1 billion that the Muir family was seeking.

The retailer’s business model also dampened enthusiasm of the potential suitors with The Good Guys operating on a franchise system, prompting the Muir family to consider a public float in both 2014 and 2015.

The Muir family has been restructuring in the past six months, buying out more than 56 franchisees to corporatise the business in a bid to address the concerns about the joint venture model of potential trade buyers or investors participating in a public float.

Both sale options are on the table, with the South African retailer, Steinhoff International Holdings, in talks with the Muir family about buying the business or, at least, a controlling share.

Through its Australian subsidiaries, Steinhoff owns Freedom Furniture, Snooze, Best & Less, Harris Scarfe and an electrical format branded Poco.

Steinhoff International has extensive retail interests around the world, including electrical, whitegoods and home entertainment brands.

A deal with Steinhoff International is understood to have been timetabled for mid-2016, but it has emerged that the Muir family has also been talking to private equity firm, Bain Capital, and has asked financial advisors, Helfen Corporate Advisory, to examine the public float option.

The sale price is understood to still be a sticking point on a prospective trade sale, with the public float option being scaled to a $900 million to $1 billion listing, effectively twice the price that Anchorage Capital extracted on the listing of Dick Smith in December 2013.

Financial analysts estimate The Good Guys has an enterprise value of between $800 million and $900 million and it is believed Steinhoff International considers the Muir family’s price expectations are above market value, especially given the caution of investors in the wake of the Dick Smith collapse.

Michael Hill

Michael hill 2The jewellery firm, Michael Hill International, is listed on the New Zealand Stock Exchange, but in recent years has expanded its Australian store footprint and ventured into the North American market.

Michael Hill International has been headquartered in Brisbane for 16 years and, with about 64 per cent of its revenues generated in Australia, the retailer is now strongly considering a listing on the Australian Stock Exchange.

The company is understood to be considering a similar structure to another New Zealand founded retailer, Kathmandu, which is listed on both the NZ and Australian stock exchanges.

Mike Parsell, CEO of the Australian operations of Michael Hill International, indicates a listing would provide funds for further growth.

In Australia, the retailer has 166 stores trading under the Michael Hill brand and another 10 under a second banner, Emma & Roe.

The company is particularly focussed on building the Emma & Roe brand both in Australia and in North America, where the company’s sales have now topped $100 million.

In Australia alone, the retailer wants to roll out 150 Emma & Roe stores.  The brand’s fashion jewellery range has also been introduced to Michael Hill stores in Canada and the US and the company expects to launch standalone Emma & Roe shops in the future.

A July 1 listing on the Australian Stock Exchange is planned for Michael Hill International, which started trading in Whangarei, NZ in 1979.

Terry White Chemists

TerryWhiteAnother Queensland-based retailer, Terry White Chemists, is also considering a public listing in line with a growth strategy that aims to expand its store network from 225 pharmacies to more than 400 in the next few years.

The third largest pharmacy group in Australia, Terry White Chemists has successfully integrated the 60-store Chemplus franchise group it acquired last year in a $3 million deal. CEO, Anthony White, indicates further acquisitions could underpin future growth, along with organic expansion.

White believes scale will be increasingly important in the competitive pharmacy sector and a listing on the Australian Stock Exchange would provide capital to fund growth, but he has indicated there is no urgency to making such a move.

Terry White Chemist is an unlisted public company with around 450 shareholders, but a public float would expand the capital base.

Rival pharmacy chains, Amcal, Guardian and Priceline Pharmacy, already have access to capital from the Australian Stock Exchange through their listed parents, Sigma Pharmaceuticals and Australian Pharmaceutical Industries, respectively.

Terry White Chemist currently has annual sales of an estimated $1.3 billion and has developed its business model to allow an easy transition to a public company if and when the decision is made.

Mitre 10

Mitre10The listed grocery wholesaler, Metcash, has considered a float of its Mitre 10 hardware business in the past two years, as it struggled to balance debt and demand for further investment in its core food and liquor business.

The prospect of a stock exchange listing for Mitre 10 is back in play as Metcash looks to acquire the Home Timber and Hardware business from Woolworths once the Masters Home Improvement exit is finalised.

The prospect of a merger of the two independent hardware businesses has in principle support from the Australian Competition and Consumer Commission and a thumbs up from investors, but Metcash is understood to be wary about racking up more debt to consummate a deal.

Metcash has been discussing options with private equity firms who could inject capital and expertise to assist in integrating the two hardware businesses and such a joint venture would be very likely to lead to a public float in two to three years.

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