The acquisitive Munro Footwear Group (MFG) is a step closer to a public float, after purchasing Fusion Retail Brands for an undisclosed price structured through an all scrip deal.

This is the seventh acquisition for MFG in the last decade and a strategic move that significantly expands the Melbourne-based footwear company’s retail footprint.

MFG will increase its store network from 95 outlets to 290, following the Fusion Retail acquisition.

The takeover will lift annual sales by around $200 million to close to $300 million.

MFG had been negotiating the acquisition for 15 months with Couper Finance, a company associated with John Johnston, the co-founder of the Godfrey’s vacuum chain.

Johnston stepped up and took control of Fusion Retail in a deal with banks and financiers, who had saved the retailer from administration in a debt for equity swap.

Fusion Retail was formerly the Colorado Group.

Fusion Retail returned to profitability this year, after losing $6.5 million in FY16 and $33.3m in FY15.

MFG has steadily built its footwear business on a vertically integrated model, with acquisitions including Wanted Shoes and Mountfords. Its stores trade as Cinori, Midas, Wanted Shoes, Mollini and Mountfords and the company has an online platform, Styletread.

The company also has a portfolio of brands that are sold through a wholesale channel, including Django & Juliette, I Love Billy, Silent D, Mollini and Top End.

Fusion Retail brings the Williams, Mathers, Diana Ferrari and Colorado brands into MFG’s portfolio.

Jay Munro, MFG’s CEO, said the deal combines the strength of his company’s strength in product development with Fusion’s national store network, increasing sourcing capabilities, scale and market penetration.

Growth on the horizon

The latest acquisition significantly bulks up the Munro family business, providing an enhanced offer to investors if the company proceeds to a public float on the Australian Stock Exchange.

After acquiring the $20 million Wanted Shoes chain in 2015, Munro said the family business might consider going public or raising funds from external investors to support future growth.

Current trading conditions for retail stocks on the ASX that have seen Officeworks and Craveable Brands abandon public listing plans would be likely to curtail an immediate move by MFG, but Fusion Retail could provide impetus for a public float.

Munro has indicated there is no immediate plan to list and the company has not undertaken any formal evaluation of that option with bankers and advisors.

He pointed out that the priority for the company is to bed down the Fusion Retail acquisition, which effectively triples MFG’s sales and store locations.

The acquisition lifts MFG’s market share to around nine per cent of the fragmented footwear market, which has the Perth based Betts and the Adelaide Spendless Shoes as two of the major chains competing with Fusion Retail outlets.

Ready to pounce

Munro has patiently pursued growth opportunities, having bought the Midas and Mollini brands from the collapsed Figgins footwear business in 2010, before the 2013 acquisition of Australia’s largest online shoe retailer, Styletread, from founders Mark Rowland and Bjorn Behrendt.

Munro spent 18 months talking about a deal with John Parrella, the owner of the 11 store Mountford Shoes chain, finally stitching up a deal in 2014 and has been negotiating with Johnston for 15 months on the Fusion Retail purchase.

MFG started with a single label in 1962 and, following its acquisitions, is now one of Australia’s leading retailers and wholesalers of footwear with a mix of heritage and fashion brands, including Williams, which is Australia’s oldest footwear business dating back to a store opened in Ballarat in 1864.

MFG has kept a low profile while strategically building an integrated vertical business model from design through to store based and internet retailing.

A comeback from Colorado

Munro said the 15 month gestation of Fusion Retail was about making sure it was the right fit for both companies. However, a key element of the decision was whether or not Johnston’s management team had stabilised the retailer.

Fusion Retail was established following the spectacular 2011 collapse of the Colorado clothing and footwear chain, which had been under the ownership of Affinity Equity Partners from 2006.

At the time of the collapse, Colorado Group had 430 stores in Australia and New Zealand.

Administrators were called in after financiers rejected a recovery plan for the heavily indebted retailer.

Ferrier Hodgson began restructuring the business and reduced the store network to 282 outlets, while negotiating a debt for equity swap with lenders to allow the company to continue trading.

The debt-to-equity deal reduced balance sheet debt from $430 million to $90 million, split between term debt facilities and shareholder loans.

Creditors NAB, Japanese bank Nomura and US private equity firms Anchorage and Ice Canyon held a combined 75 per cent stake Fusion Retail following the bailout.

Despite the reduced debt commitments, Fusion Retail continued to struggle for profitability.

Johnston’s invested in the business in 2014, buying out the equity held by financiers and installed a management team that has managed to return the retailer to profitability.

Johnston has become the first outside shareholder in MFG through the share deal that has transferred ownership and control of Fusion Retail.

He is also the largest shareholder in the listed Godfreys business, which he co-founded in 1936 with Godfrey Cohen.

Johnston sold the Godfreys chain to private equity firm, Pacific Equity Partners, for $300 million in 2006 and bought it back for $100 million in 2011 before floating the company on the ASX in 2014.