How the FatFace deal lines up with Next’s aggressive acquisition strategy

This year has been a year full of big mergers and acquisitions and October has continued in that vein. The latest of these acquisitions has come in the form of Next’s £115m takeover of lifestyle brand FatFace. This deal is the latest in a long line of acquisitions by Next and is part of an overarching strategy to boost its e-commerce business.

History of FatFace

FatFace was founded in 1988 by Tim Slade, a former policeman, and business graduate Jules Leaver at French ski resort Méribel. The pair bought T-shirts wholesale, had them printed with designs specific to the resort, and sold them to other skiers initially to fund their own skiing.

They spent the following years travelling to different ski resorts, where they continued to produce and sell ski and outdoor-related clothing In 1993 they opened their first shop, on London’s Fulham Road and named it “FatFace” after the Face de Bellevarde slope in Val-d’Isère.

In 2000, they sold 40% of the company to Livingbridge for £5m. Livingbridge would then sell its interest in the company in 2005 to Advent International. In 2007 FatFace was acquired by private equity group Bridgepoint Capital for £360m which netted Slade and Leaver £90m.

Sales at the brand were badly affected by the financial crash of 2008 which led to Bridgepoint writing off half of its value. The company’s sales did improve in 2010 and 2011. The firm planned to float a quarter of the company on the London stock exchange in 2014, hoping to raise £110m, but later cancelled the flotation due to lack of confidence by prospective stockholders.

In September 2020, FatFace announced the completion of a lender-led debt and capital restructuring of FatFace Group Borrowings Limited. Following the restructuring there was a change of control of the parent company of the FatFace Group to Fulham Parent Limited.

As a result of the restructuring, FatFace’s ownership changed hands from its majority shareholder, Bridgepoint, to the group’s lenders through its newly formed parent company. As part of the restructure, the debt profile of the group significantly reduced, from loans and borrowings (excluding lease liabilities) with a face value of £172.4m at the completion date to £25.6m at the period end with expiry dates between September 2023 and May 2024.

The Next acquisition

The £115m FatFace deal is the latest in a long line of recent acquisitions by Next. The deal is the company’s third acquisition of 2023 and its seventh acquisition since 2020. The common theme in all the acquisitions is aiming to boost its online sales portal Total Platform.

Last month Next acquired a 72% stake in high street fashion brand Reiss. The company first acquired a 25% stake in the company in March 2021, before upping its stake to 51% last summer and finally acquiring the 71% stake last month.

As part of the deal in March 2021 Next paid £33m for the 25% stake and gave Reiss a £10m loan. Next began operating Reiss’ website and online operations contracted to Next through its Total Platform.

In March of this year Next bought Cath Kidston brand, domain name and intellectual property for £8.5m after the retailer fell into administration. Next relaunched the brand on its website in June adding another brand to its Total Platform.

2022 was also a big year for acquisitions for Next, with the company saving multiple brands out of administration. Next bought Joules out of administration for £34m taking a 74% stake in the company. It is expected that Joules will be relaunched in October on the Total Portal.

Next also acquired Made.com from administration for £3.4m adding a homeware retailer to its fold. It is yet to be revealed what Next is set to do with the brand but it was a company which grew hugely over the pandemic before faltering as a result of the cost of living crisis.

The company also broadened its offering last year by acquiring a 44% stake in baby retailer Jojo Maman Bébé. This acquisition differs slightly from the previously mentioned deals as Jojo Maman Bébé remained a separate entity, keeping its boutique stores open while allowing Next to run its online operation.

The success of the model can be seen in Next’s recent results. For the half year ended 29 July 2023 the company saw its online sales increase 4.1%, with sales up 10% in Q2 alone. Furthermore, it had a total of £1.5bn of sales online in the half year, and this was with an unusually large amount of stock for clearance.

This strategy is in contrast to the strategy of rivals such as Frasers Group. While Fraser’s has adopted a similarly aggressive strategy when it comes to acquisitions the group seems to favour brands which can be used in bricks and mortar stores. For example, the acquisition of Game in 2019 led to many Game stores being opened in Sports Direct stores as opposed to any online.

Overall Next has been pursuing an aggressive strategy to continue to boost its online portal. Clearly the company sees this as the way forward and it is a way to differentiate it from its competitors. It would not be a surprise to see Next continue down this path as more retailers become available for acquisitions.