Next weighs bid for Philip Green’s Topshop
Any deal would be part-financed by an investment partner
Next is considering a bid for Philip Green’s Topshop and Topman fashion chains that entered administration at the end of November, most likely in conjunction with a financing partner.
People briefed on the process stressed that no final decision on a bid had been made, and that while Davidson Kempner was the likely choice to act as a negotiating and financing partner, it was not the only option.
Davidson was also recently linked to Peacocks, the discount UK fashion chain owned by Philip Day, which went into administration shortly before Arcadia, the group that owns Topshop.
UK clothing retailer Next, run for almost 20 years by chief executive Simon Wolfson, has not traditionally been acquisitive and has little experience of integrating large and troubled businesses.
It acquired Fabled, the beauty business owned by Ocado, for an undisclosed price last year, as well as Lipsy, a youth fashion brand, for £17m in 2008. Before that, its last acquisition was the Grattan catalogue business in 1986, which formed the basis of Next Directory.
However, Next’s strong balance sheet and well-oiled ecommerce operation have emboldened it as distressed assets have come on to the market at attractive prices owing to the coronavirus pandemic.
Earlier this year, it acquired the UK business of Victoria’s Secret out of administration, and has also taken on several former Debenhams stores that it plans to repurpose into beauty and home stores.
One person said that Next would proceed very cautiously and would not overpay, adding that it was possible that some stores could be retained but this would depend on lease agreements.
“They would not be taking them at the rents they are on at the moment,” the person said.
Topshop’s 173 stores generated sales of £413m in the year to September 2019, with its ecommerce operation adding a further £120m, according to documents circulated to potential bidders by Arcadia’s administrators Deloitte. Its “contribution”, defined as the amount paid towards central overheads excluding depreciation, was £87m.
Topman, most of whose stores are shared with Topshop, generated sales of £143m and a contribution of £25m.
The brands’ combined revenues of £829m, which include sales made through franchises and wholesale partners, compare with £846m the year before. The documents do not provide any details of more recent trading.
A subsidiary of Topshop also owns the freehold of a 1m square foot distribution centre — a potentially valuable asset — though the warehouse in Daventry serves as security for a £50m loan to the company from Tina Green, Sir Philip’s wife and Arcadia’s ultimate owner.
Next’s potential involvement was first reported by Sky News.
The company is one of a substantial number of potential suitors for the Arcadia stable.
Others include Authentic Brands, the US owner of Forever 21, Barneys and Nautica; along with Boohoo, the online fast-fashion group that has already snapped up Karen Millen, Coast and Oasis out of administration.
Mike Ashley’s Frasers Group has also declared an interest in buying any or all of the Arcadia brands, which include Burton, Wallis, Evans, Miss Selfridge and Dorothy Perkins as well as Topshop and Topman.
Next and Deloitte declined to comment.