By Jonathan Fuchs, Bilal Rashid, Billy Dinsdale, Oscar Fontaine (London School of Economics) and Tigran Minasian, Jian Wee Soh, Ross Barrett and Angus Wyllie (Imperial College London)
Photo: Heidi Fin (Unsplash)
Overview of the deal
Acquirer: Central Group and Signa Holding
Target: Selfridges Group (From Weston Family)
Implied Equity Value: $3.4 bn
Total Transaction Size: $5.4 bn
Closed date: December 24th, 2021
Target advisor: Credit Suisse
UK-based department store chain Selfridges group will be acquired by Thailand-based Central Group and Europe-based Signa Holding in a 50-50 partnership valued at $5.4 billion. This deal was announced in light of the passing of Galen Weston, who formed the Selfridges Group in 2010. With over 18 department stores across the UK, Netherlands, and Ireland, Selfridges Group has been a pioneer in retail innovation and held a longstanding commitment to sustainability. Recognising the broad customer network and strong foundations of the luxury retail group, Central and Signa seek to continue the legacy of Galen Weston in providing a high-quality, omnichannel retail environment for all customers by adding it to their combined portfolio of luxury department stores. With the Omicron wave fading, increased consumer spending, and rapid sales growth, this acquisition will allow Selfridges to ride on the retail sector's recovery, potentially superseding its main competitor Harrods to become the biggest luxury department store in the UK.
Company Details (Acquirer - Central Group)
Family-owned Central is Thailand’s biggest department store operator and is one of the country’s largest conglomerates. Central’s ownership and management are divided among the Chirathivat family, billionaires who established the company in 1947. By acquiring Selfridges, Central continues its decade-long acquisition spree of luxury European department stores, including Italy’s Rinascente, Germany’s KaDeWe, Switzerland’s Globus, and Denmark’s Illum. The group has grown to include more than 50 subsidiaries, 3 of which are publicly listed (Central Retail, Central Pattana, and Central Plaza Hotel).
Founded in 1947, headquartered in Bangkok, Thailand
CEO: Tos Chirathivat
Number of employees: 80,000
Market Cap: $7.02bn (as of 04/03/2022)
LTM Revenue: N/A
Company Details (Acquirer - Signa Holding)
Signa is one of Europe’s leading real estate and retail groups. Founded in 1999 by Austrian investor René Benko, Signa manages more than $20 Billion in real estate assets. Its holdings include some of the world’s most iconic properties, including New York’s Chrysler Building and the Hotel Bauer in Venice.
Founded in 1999, headquartered in Innsbruck, Austria
CEO: Christoph Stadlhuber and Marcus Mühlberger
Number of employees: 40,000
Market Cap: N/A
LTM Revenue: $34.6bn
Company Details (Target Owner - Weston Family)
The Weston family of Canada, Ireland, and the United Kingdom is a prominent family of businesspeople primarily involved in food and clothing businesses. Through various holding companies, the Canadian family branch owns/controls over 200 companies, which previously included certain Selfridges Group department stores. In 2018, the Westons were named the richest family in Ireland, with a wealth of €11.42 billion.
Family operations began in: 1884, headquartered in Canada, Ireland, and the United Kingdom
CEO/Head: Galen Weston Jr.
Company Details (Target - Selfridges)
Selfridges, also known as Selfridges & Co., is a chain of high-end department stores currently situated in the United Kingdom founded by Harry Gordon Selfridge in 1908, who is popularly believed to have coined the term “the customer is always right.” Selfridges continue to be one of the biggest clothing retailers in the UK, having achieved consistent revenues of above £400 million a year, peaking at £852.9 million in 2020 before the full impact of coronavirus on department stores.
Founded in 1908, headquartered in London, United Kingdom
CEO: Paul Kelly
Number of employees: 3200+ (2020)
Projections and Assumptions
It is important to note that luxury brands are valuable long-term financial assets rather than short-term profit engines. According to Deloitte, the Luxury goods industry saw sales grow at a CAGR of 8.5% in the last decade and a 7.4% CAGR on assets. Hoping that past performance will project future growth could be a major oversight if the bullish run on luxury goods spending grinds to a halt in the following years. Selfridges is in the position to expand sustainable clothing lines as this is a growing sector that could see a new age for luxury brands.
Synergies are an important factor in acquisitions, and overestimating them is a common issue in the short-term adjustment period for companies. Central and Signa already hold Riscante, Illum, Globus and are looking to acquire The KaDeWe Group (est. 2024). The acquirers plan to incorporate Selfridges into a complementary portfolio of European-only luxury department stores and have similar management across synergistic brands.
While deal costs vary depending on the type of merger, other fees can go unnoticed. Legal advisory fees could become very expensive due to expensive integration practices, like employee training, rebranding, and new salary budgeting. Nevertheless, given that Central and Signa already hold and have acquired multiple luxury brands, it is unlikely that there will be many unexpected costs that would dwarf the stated cost due to a lack of experience.
Unforeseen market disruption could be a high risk in the short term of this deal. YoY-Growth was positive in seven of the last eight years, with 3/5 of income coming from in-store retail. Retail foot traffic is down 26% (Google Coronavirus Data Trends, 2022) compared to the expected baseline in London, so trust in safe public spaces can have a significant impact on future returns.
The two family offices will be able to utilise their expertise gained from past transactions in the retail and real estate to drive potential operational improvements. The acquisition adds to the department store portfolios of the two partners, who are projecting growth in Pro-forma annual turnover to EUR 7 billion by 2024, from EUR 5 billion in 2019 for the portfolio. The partners’ extensive portfolios mean that they can share knowledge and innovations across different department stores and locations as the new owners drive operational improvements.
The two partners’ strong capability in providing luxury online customer offerings will help Selfridges extend its business beyond physical stores. Online retail has become increasingly important in recent times, as consumption trends have shifted online at an accelerated rate following the risks and restrictions of the Covid-19 pandemic.
Meanwhile, Signa’s Chairman also seeks to work on the sustainability and energy efficiency of Selfridge’s physical stores, which will save costs and appeal to environmentally aware consumers. However, Signa’s Chairman also stated that they aim to maintain the architectural and cultural heritage of the stores during this modernisation period.
Overall, this partnership between the two family offices should benefit Selfridges with its synergies and new management. In addition to the knowledge and innovation transfer, the offices’ management will use its past expertise to pursue a long-term strategy for the stores and help Selfridges transition to become an omnichannel business that will better cater to its customers’ changing preferences.
Risks and Uncertainties
Many have called into question the £4bn asking price demanded by the retailer’s previous owner, the Weston family. The firm’s extensive property portfolio, flag shipped by its 540,000 square foot London headquarters, is the key attraction for the deal, accounting for approximately half of the price paid. £4bn represents close to 5 times the firm’s £852mn 2019 sales revenue, which is more than double the multiple used for Glendower Capital’s buyout of Liberty in 2019 and significantly larger than the 3.2 times multiple used for the Qatari buyout of Harrods in 2010.
The ongoing pandemic has wreaked irreparable damage on the UK retail industry, with hundreds of major retailers, including John Lewis, closing stores and the demise of many chains like Beale’s, House of Fraser, and Selfridges’ Oxford Street neighbour, Debenhams, after over 240 years of trading. Central and Signa must ensure that Selfridges does not suffer the same fate.
Doubling down on the importance of a substantial physical presence and a unique buying experience, the acquirers have announced additional investments into the London store. These will look to reopen the brand’s previously unsuccessful hotel and expand the chain’s food court. However, there are doubts about the feasibility of the real-estate debt-backed approach, which assumes that UK commercial property prices will continue to appreciate. Furthermore, the decision to buck the ongoing trend of shifting to e-commerce, which has seen recent exponential growth, such as with Boohoo and ASOS, may prove detrimental. Online shopping proves to be increasingly popular in the wake of the pandemic, especially among the younger demographic, who are an important customer base for Selfridges’ continued long-term growth.