Lately-unloved fashion brand Ted Baker (TED) is being looked over by Sycamore Partners regarding a possible buyout of the UK company. The US private equity firm confirmed on Friday (18 March 2022) that it is in the ‘early stages’ of a possible cash offer for the London-headquartered clothing retailer.
Shares in Ted Baker jumped more than 20% to 119.5p after the confirmation, having rallied 10% during the previous days’ trading session as rumours first began circulating around the City. Yet the share price remains far below the near-£30 levels at which they traded back in 2015.
RETAIL BUYOUT SPECIALIST
Sycamore has built a reputation as a retail buyout specialist, having previously owned upmarket footwear brand Kurt Geiger. The private equity firm is also is thought to be targeting US department store chain Kohl’s in a joint bid with Canadian department store operator Hudson’s Bay.
Responding to Sycamore’s announcement, Ted Baker confirmed it has not received any approach from Sycamore and insisted it ‘continues to make good progress with its transformation’ and is emerging from Covid as ‘a stronger and more financially sustainable business.’
Ted Baker also expressed confidence in its prospects as an independent business and said it would evaluate any offer ‘against the strong shareholder value creation that it believes can be delivered as a standalone company.’
In February, Ted Baker said sales in the final quarter to 29 January 2022 were up 35% year-on-year despite headwinds from Omicron and confirmed it is on track to meet its full year 2023 targets of £30 million free cash flow and an EBITDA margin of 7%-to-10%.
Marc Dench, formerly of fellow clothing retailer Joules (JOUL:AIM), joined as the company’s new finance director earlier this month.
WHAT THE EXPERTS ARE SAYING
Shore Capital highlighted Ted Baker’s positioning as a ‘British lifestyle brand with a very accessible price point in the luxury goods space’, which it believes the retailer ‘a highly competitive stance.’
Addressing the takeover interest, the broker sees ‘the potential for read-across to other UK lifestyle brands, Superdry (SDRY) and Joules,’ whose shares were up 2.7% to 169.4p and 3.9% to 54p respectively in early dealings.
Shore Capital said it would not be surprised if private equity firms targeted these brands, now in what the broker calls ‘deep value territory.’
‘It looks like someone might bring an end to Ted Baker’s horrific time as a listed company, said Russ Mould, investment director at AJ Bell.
‘Sycamore appears to have spotted an opportunity to step in and buy the company while its valuation remains low and to help with the recovery efforts.
‘Ted Baker’s latest trading update shows an acceleration in sales growth, improved margins, a small year-end net cash position and encouraging comments from the management. That’s encouraging but the market has yet to be won over by the numbers, so Sycamore must be putting a lot of faith in the company’s turnaround potential.
‘There are major headwinds over the coming months for retailers given the inflationary pressures on family finances. Therefore, acquiring Ted Baker now could come with additional challenges beyond those which have already shaken the business for years.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares. The author (James Crux) and Steven Frazer, who edited this story, own shares in AJ Bell.
