wer rents. In response, some landlords have agreed to straight percentage of turnover rent deals to keep some tenants from walking out of their stores, although the rents specified in their leases have not been altered, as that would impact the valuations of the shopping centres. The continuation of difficult retail market conditions and the challenging outlook have also been driving a consolidation, particularly in the fashion and food categories, and the acquisition or buybacks of Australian chains by overseas retailers. The shakeout is, in part, a reaction to the entry of global retailers with access to cheaper capital for store development and greater flexibility, without legacy issues associated with staffing and store networks. However, the more significant factor spooking Australian retailers is the growing market penetration of the internet, led by the scaling up of Amazon. Online retailers are changing price perceptions and it is highly likely that they will secure a higher market share of total retail sales than in other countries because of the high cost base of Australian retailers related to staffing, store occupancy, transport and utilities costs. A change of tack The challenging outlook for the industry has encouraged some retailers to explore listings on the Australian Stock Exchange (ASX) to underpin their financial positions and also drive acquisitions which, in some cases, are rescuing chains from administration. As IRW has previously reported, Specialty Fashion Group, and Billabong International are both set for ownership changes that would see them exit from the ASX listings. A $380 million takeover offer from California-based Quiksilver for Billabong International has run into some shareholder turbulence. Directors of Billabong International have recommended acceptance of the takeover offer after reviewing other options, including a refinancing plan, but some investors have queried the valuation of the business in takeover documentation. Notwithstanding the concerns highlighted by Ryder Capital, which has a 10.3 percent stake in Billabong International, the takeover is expected to succeed, joining together two iconic Australian surfwear brands under US ownership. A suitor for SFG? Specialty Fashion Group’s new CEO, Daniel Bracken, a former Myer executive, has joined the listed multi-brand retailer as the retailer’s directors complete an operational review and assess prospective takeover offers. One of the offers for SFG, which has suffered a succession of trading losses, including an $8.4 million loss for FY17, is from a consortium that includes former long-time CEO Gary Perlstein. IRW understands a number of suitors have knocked on the door at SFG, with the revitalised Noni B publicly declaring an interest in buying at least one of the retailer’s brands. SFG has appointed FTI Consulting and Luminis to advise on the expressions of interest lodged with the company, as well as restructure options that would allow the retailer to continue as a standalone retailer. SFG currently has a market capitalisation of around $53 million, a figure bolstered by the emergence of potential buyers. Noni B was restructured after former Babcock & Brown executives, Phil Green and Trevor Loewensohn, acquired Noni B through their investment vehicle, Alceon, and subsequently bought Pretty Girl Fashion from Consolidate Press in 2016. That acquisition added the Rockmans, BeMe, W Lane and Table Eight brands to the Noni B, Queenspark and Events retail chains. Alceon also acquired Ezibuy from Woolworths. Taste for adventure In a further consolidation of the adventure sport category, Super Retail Group has acquired Macpac in a $134 million deal, a transaction that was not enthusiastically welcomed by investors. Super Retail Group has been one of the most successful retailers over the past decade, despite a poor track record with acquisitions, a record that prompted an initial response from shareholders that wiped $235 million from the retailer’s market value. Founded in 1972 in Brisbane and listed on the ASX in 2004, Super Retail Group’s growth has primarily been driven by Supercheap Auto, Boating Camping Fishing (BCF) and its one genuine acquisition success, Rebel Sport. The retailer has merged its Amart Sports stores into Rebel and has spent seven years trying to create a profitable business model for Rays Outdoors after downsizing acquired retail chains, Goldcross Cycles and Workout World, to departments within its sports stores. Group managing director and CEO Peter Birtles, contends the acquisition of Macpac and the acceleration of the adventure outdoors retailing strategy is consistent with the retailer’s strategy of “providing solutions and engaging experiences that inspire its customers to enjoy their leisure time”. Shareholders and analysts are not as convinced of the wisdom of the acquisition at a multiple of nine times Macpac’s earnings before interest, tax and depreciation. The rule of thumb for an acquisition of this type would be six times EBITDA and it would seem Super Retail Group might have been a tougher negotiator, given that Macpac last changed effective ownership in December 2015 when Champ Equity outlaid about $70 million for a 90 per cent stake. Buying Macpac from a private equity firm at a generous premium has added to concerns about Super Retail Group’s poor history in identifying good buys and in integrating them into its business, as well as apprehension about market competition into the future. Birtles argues the Macpac business has performed extremely well over recent years but still offers “a significant opportunity to grow the business in the near future through opening new stores and growing its digital and commercial channels”. “The heritage of the business and the quality of its products are assets that have not yet been fully leveraged, and we believe there is an opportunity to develop an experience for customers that brings these assets to the fore.” Super Retail Group plans to integrate Macpac, which has 54 stores in Australia and New Zealand with annual sales of around $86 million, with the revamped Rays Outdoors. Donut worry about a thing In a private transaction, Krispy Kreme Australia has been acquired by the North Carolina based Krispy Kreme Donuts for $150 million. Krispy Kreme was launched in Australia in 2003 with meteoric success initially before it went into administration in 2010. John Kinghorn and John McGuigan emerged from the administration with around 70 per cent of the retail chain, which has annual sales of around $88 million from 22 stores around Australia. Another retail chain that could see a change in its ownership structure is activewear brand Lorna Jane, which has around 200 stores in Australia and the United States. Lorna Jane had considered a float on the ASX in 2014 but ended up continuing under the control of founders Jane and Bill Clarkson and Champ Equity. Champ Equity is understood to be interested in realising its investment and the retail brand has continued to attract interest from other private equity firms since the public float or trade sale at $400 million was considered four years ago.