- Offer ‘fundamentally undervalued’ sports nutrition brand
- Approach fires starting gun for offers
- THG focused on growth and cash generation
Shares in unloved THG (THG) ticked up 3.3% to 30p after the e-commerce company rejected an takeover bid for its Myprotein sports nutrition brand from Selkirk (SELK:AIM), the cash shell established by former THG director and early ASOS (ASC) backer Iain McDonald.
Floated on AIM last year with plans to acquire undervalued consumer, technology and digital media sector assets, Selkirk’s backers include activist and vocal THG critic Kelso Group (KLSO), while non-executive director Angus Monro knows THG well, having sat on the board until 2020.
As for Matt Moulding-steered THG, it stressed Selkirk’s offer for Myprotein was ‘wholly unsolicited, largely unfunded, highly conditional and non-binding’ as the FTSE 250 firm insisted it is focused on ‘executing its growth and cash generation strategy’.
DEAL LACKING DETAIL
Selkirk’s offer ascribed a headline value to Myprotein of £400 million to £600 million on a cash-free, debt-free basis, yet THG stressed that the bulk of the consideration offered was in the form of newly issued Selkirk shares.
In addition, THG highlighted that the remainder of the consideration would have been ‘payable in cash from a new equity and debt issuance, which was largely unfunded and without appropriate detail on its source’.
Manchester-headquartered THG ‘unequivocally’ rejected the bid on the basis it ‘fundamentally undervalued Myprotein and its prospects’ and carried execution risks, in particular the ability of Selkirk to raise sufficient funding.
FOCUSED ON GROWTH
THG, which operates the Lookfantastic, Cult Beauty and Dermstore online platforms, said that following the demerger of its Ingenuity e-commerce and logistics business in January and a recent refinancing, it has reduced net debt and secured long-term banking facilities and is now ‘focused on executing its growth and cash generation strategy’.
Lukewarm on the THG story with a ‘hold’ rating, Panmure Liberum calculated that Selkirk’s bid would have valued Myprotein at an EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation) multiple of 11 to 17 times 2025 estimates falling to 7 to 11 times on 2026 forecasts, ‘not much higher than the group’s current traded 2026E EV/EBITDA multiples of 9 times’.
‘Given the strategic rationale for the bid, and with no firm funding in place, this was probably an easy decision for the board, but also highlights that the equity value within the group remains significantly trapped behind a wall of debt and ongoing weak trading,’ said the broker. ‘This deal would not really alleviate that for shareholders.’
PUTTING DOWN A MARKER
Russ Mould, investment director at AJ Bell, commented: ‘THG boss Matt Moulding always made out there was hidden value in the business and no-one listened⦠until now. An approach from Selkirk to buy THG’s Myprotein business for up to £600 million puts down a marker for what the division is worth, and it’s more than the value of the entire group as of last night.
‘For all the drama around THG since it’s been a listed business, it does deserve credit for building up Myprotein into one of the leading brands in the fitness and wellness world.’
Mould added: ‘Protein products are everywhere but Myprotein has done a good job at standing out from the crowd. That’s partly down to THG’s marketing tactics, always offering deals on Myprotein products via its direct-to-consumer operations and that’s helped to build up a loyal fanbase.
‘It’s exactly the type of business that would appeal to an outfit looking to capitalise on a hot trend. While THG has rejected Selkirk’s approach, this might have fired the starting gun for other interested parties to think about making a move.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
