By Shivaum Bapu, Daniel Winsor, Mohammed Safayat, Nicole Phung and Pristie Sharma (UCL), Obielumani Amudo, Mayi Hughes, Devin Vasquez, and Nyasia Jordan (Harvard)
Overview of the deal
Target: Topshop, Topman, Miss Selfridge and HIIT brands
Implied Equity Value: N/A
Total Transaction Size: £265 million
Closed date: 4th February 2021
Target advisor: N/A
Online fashion retailer Asos has acquired Topshop and its sister brands Topman, Miss Selfridge and HIIT from failed retailer Arcadia. 300 of Arcadia’s 13,000 employees will be transferred to Asos, leaving numerous ex-employees and empty stores. Asos plans to transform the newly acquired brands and merge the digital online stores into its own site. Asos has also acquired the intellectual property assets from Arcadia Group’s joint administrators for £265 million. They hope the acquisition will quicken their multi-brand platform strategy, as well as driving online growth more generally. Asos sees the acquisition as a significant move towards becoming the leading fashion site for young people worldwide. More widely, this deal continues the trend of online firms acquiring high street retailers for cheap and emphasises the dynamic consolidation occurring within the sector.
Company Details: (Acquirer - Asos)
Asos plc is a British online fashion and cosmetic retailer. The company’s mission is to be the world’s number one fashion destination for fashion-loving 20-somethings.The website sells over 850 brands as well as its own range of clothing and accessories, and ships to all 196 countries from fulfilment centres in the UK, US and Europe.
Founded in 2000, headquartered in London, UK
Co-Founders: Nick Robertson, Andrew Regan, Quentin Griffiths, Deborah Thorpe
CEO: Nick Beighton (Since 2015)
Number of employees: 3,824 (As of 01/02/21)
Market Cap: £5.67bn (As of 31/12/2020)
LTM Revenue: £3.26B
LTM EBITDA: £278m
LTM EV/Revenue: 1.72x
LTM EV/EBITDA: 20.1x
Company Details: (Target - Topshop, Topman, Miss Selfridge, HIIT)
Topshop, Miss Selfridge, Topman, and HIIT are all leading brands from Sir Philip Green’s Arcadia empire. Topshop and Topman are UK-based multinational fashion retailers. Miss Selfridge is a nationwide UK high street store chain and the HIIT Company is focused on creating functional training apparel within the fashion industry.
Founded in 1964, 1978, 1966
CEO: Paul Price, Paul Price, Nick Beighton
Number of employees: 10,000+ (Topshop and Topman), 1,188
Market Cap: N/A
LTM Revenue: N/A
LTM EBITDA: N/A
LTM EV/Revenue: N/A
LTM EV/EBITDA: N/A
Projections and Assumptions
With Boohoo’s acquisition of Debenhams happening simultaneously, the British highstreet has been left with a gaping wound. Topshop, for one, was Arcadia’s prized jewel. Being embraced by Asos, a fashion-for-all affordable platform, means public perception towards Topshop’s brand - its ethos and reputation may waver.
This asset acquisition excludes any of Arcadia’s warehouses or its distribution centre in Daventry. Weaving Topshop into Asos’ ecosystem means its operations and overall strategy is set for drastic change. Asos’ chief executive, Nick Beighton, expressed that, “We have been central to driving their recent growth online and, under our ownership, we will develop them further, using our design, marketing, technology and logistics expertise, and working closely with key strategic retail partners in the UK and around the world.”
As Asos is only retaining 12% of the targets’ employees, it is no surprise that an immediate repercussion was employees’ dissent. For public relations reasons, Asos will need to face the short-term impact of employment issues (e.g. contracts, pensions) resolve them.
Following the acquisition of Topshop, Asos aims to continue its international growth that it saw over 2020 due to a large rise in e-commerce sales. Not surprisingly, the acquisition of Topshop was made entirely with cash, which can provide some certainty that this buyout will be successful in the long-run with the large revenue that Asos expects to make from international customers. Topshop’s success overseas was a major factor in the acquisition. With about half of Topshop’s 2020 sales coming primarily from the United States and Germany, Asos’s CEO hopes it can increase international revenue by developing the company further using ASOS’s design, marketing, technology, and logistics expertise.
The acquisition does not include any of Topshop’s 70 physical stores that are located throughout Europe, forcing the company to sell them off and focus on generating its sales through online purchases. As a result, Topshop will shed their losses from unprofitable stores, as they hope to keep their customers at home to shop at their freewill.
Overall, with the massive growth that e-commerce has experienced over the couple of years, there’s no slowing down. In addition, this buyout by Asos with cash is already impressive and points to the success Asos has had with the thousands of consumers shopping from their devices. Topshop’s influence outside of Europe will drive the growth of Asos even further, as it hopes to work closely with key strategic retail partners around the globe. Investors shouldn’t have to keep an eye on Asos for the next few years.
Risks and Uncertainties
ASOS is only purchasing the brands, not any physical stores, warehouses or distribution centres, with approximately 70 Topshop stores around Europe, all being sold off. ASOS currently plans to incorporate Topshop into its core model by turning it into an online website. However, Deloitte administrators have asked ASOS to think about keeping Topshop’s flagship 100,000sq ft Oxford Street store open. Shutting down all stores raises the possibility of a loss of attraction and revenue by eliminating experience-led shopping. The Oxford Street store had DJs, nail bars, food stalls, and was a fashion-hub. Customers will no longer be able to ‘pop-in’ to high street stores, reducing sales generated through customer browsing. Nonetheless, the pandemic has changed consumer behaviour, whilst also causing a huge number of administrations and restructurings among high street retailers. In July 2019, analysts predicted that online shopping could more than double its share of the retail market by 2028, and the pandemic has hugely accelerated this. The Arcadia group was struggling with the expensive leases attached to the sometimes-unprofitable brick-and-mortar stores, so there are pros and cons to the decision of moving everything online.
A further, less prominent risk is that the Arcadia brands, previously private, are now in the public eye, making it difficult to hide any issues related to production, operation, etc.
“It’s not our core model to take stores, nor our core strategy, but never say never.’” - ASOS’ CEO, Nick Beighton