LONDON — Online fast-fashion retailer Boohoo.com, one of retail’s winners during lockdown, on Thursday purchased the remaining 34 percent of PrettyLittleThing.com that it does not already own, for an initial consideration of 269.8 million pounds.
Boohoo said it purchased the stake from minority shareholders Umar Kamani and Paul Papworth and that the cost of the acquisition could rise to 323.8 million pounds, depending on share price movements. The acquisition, Boohoo added, is expected to be “significantly earnings enhancing” on a fully diluted basis, with immediate effect.
Boohoo, which is listed on London’s AIM exchange, said that by acquiring the remaining 34 percent stake in PLT, it is taking “an important further step toward achieving its vision to lead the fashion e-commerce market globally.” It said PLT is in high-growth mode, with enormous potential ahead of it, while the transaction creates “significant value” for the group’s shareholders.
“After this acquisition, and with its growing platform of wholly owned, innovative fashion brands, the group believes it can continue to successfully disrupt the international markets it operates in today, while retaining a strong balance sheet in order to take advantage of numerous M&A opportunities that are likely to emerge in the global fashion industry over the coming months,” it added.
Boohoo acquired its initial 66 percent stake in PLT in 2017 and since then the site, which targets Gen Z consumers and offers a wide variety of sizes, has grown considerably, generating 516 million pounds in net sales in the year ending Feb. 29, 2020, compared with 55 million pounds in the previous year. In the last financial year, PLT’s statutory after-tax profit totaled 45.2 million pounds.
The senior management team at PLT, including Kamani and Papworth, will remain in their current roles and continue focusing on developing PLT into a global brand.
Boohoo said the acquisition is for an initial consideration of 269.8 million pounds, with a further 54 million pounds of consideration contingent on the group’s share price averaging 491 pence per share over a six-month period between completion and a long-stop date of March 14, 2024.
Kamani, founder and chief executive officer of PLT, said the deal represents “another milestone in our journey at PLT,” which began as a “disruptive start-up” in 2012. “I’m incredibly excited about what the future holds for PLT as it embarks on the next stage of its global journey as a fully owned part of the Boohoo Group,” he added.
John Lyttle, ceo of Boohoo Group, said PLT has delivered strong growth as part of the Boohoo’s platform and “has a great future ahead of it in the U.K. and overseas. I look forward to building on the great working relationship with Umar and the senior team at PLT as the group continues to move forward with its multibrand strategy as part of its vision to lead the fashion e-commerce market globally.”
In a flash note following the acquisition, Bernstein said the valuation looked favorable, and its view on the deal is “very positive. It addresses governance concerns immediately and consolidates a margin accretive business into the group at a very favorable acquisition price.”
Bernstein also noted that Boohoo did not dip into its M&A cash pile to buy the remaining stake in PLT. “The company will have 350 million pounds of net cash immediately after the acquisition. We think that the 200 million pounds raised via equity earlier this month can be considered untouched, with the acquisition funded by the further raises and already existing net cash.”
Boohoo has been one of retail’s few winners before — and during — the coronavirus, with second-half sales growth beating consensus estimates. Last month, the fast-fashion platform reported a 45 percent sales uptick in the second half and a 44 percent rise in year-end revenues to 1.23 billion pounds.
In a report, Bernstein said Boohoo’s underlying revenue metrics were “very strong, with improving frequency, units per basket and average order size, and a steady conversion rate.”
Bernstein pointed out that, as usual, Boohoo will not pay a dividend: Instead, it wants to retain cash for reinvestment in growth — not as a shield for any damage from COVID-19. While Boohoo’s sales took a hit in mid-March due to the coronavirus, they improved in April. Both Zalando and Asos saw a similar pickup in sales this month.
Profit before tax for the year was 92.2 million pounds, and the group has a strong cash position with a net 241 million pounds and no new debt. The distribution network is operational with social distancing in place, the company said.
Boohoo specializes in fast fashion aimed at Gen Z, and owns PLT as well as Nasty Gal, another online fashion business. As reported, in fiscal 2020 it also bought the digital brand MissPap, and the online businesses and intellectual property of British retailers Karen Millen and Coast for 18.2 million pounds.
In line with its model, Boohoo did not buy any of Karen Millen’s or Coast’s high street stores and concessions. In the U.K., those two brands operated 177 concessions and 32 stores.
On Wednesday, Boohoo said it has been able to leverage its flexibility through the COVID-19 crisis, maintain a low cash burn rate and a strong balance sheet. It also said it is standing by its suppliers, with prompt payments and emergency financial support.