TIDMDFS
RNS Number : 9958M
DFS Furniture plc
03 August 2017
For immediate release
THIS STATEMENT CONTAINS INSIDE INFORMATION
DFS Furniture plc ("DFS" or the "Group")
Acquisition of Sofology and Refinancing on Improved Terms
DFS is pleased to announce it has exchanged contracts to acquire
all the outstanding share capital of Sofology Limited ("Sofology")
for an initial enterprise value of GBP25 million, on a debt-free
cash-free basis, subject to a potential further earn-out payment
("the Acquisition"). The Acquisition is subject to regulatory
approval, detailed below.
Acquisition Highlights
-- Sofology is a specialist sofa retailer with a network of 37
stores in the UK which together with a strong web presence offers
customers a technology-led omni-channel proposition
-- The acquisition will further broaden the Group's appeal to
customers, through Sofology's distinctive consumer proposition, and
as part of the Group's portfolio of strong furniture brands
-- Near-term potential synergy benefit of c. GBP4 million
annually identified, with further longer-term benefits from
intensifying use of infrastructure and future revenue synergies
expected
-- Anticipated to be earnings accretive in first full year post
acquisition, with material medium to longer-term value creation
expected
-- Sofology CEO and management team will continue to lead the business post completion
Acquisition Rationale
The acquisition of Sofology will add a strong distinctive brand
and business to the Group's current portfolio, building upon the
success of the Dwell and Sofa Workshop acquisitions. This
acquisition is consistent with the Group's existing proven strategy
of developing its brand portfolio to broaden appeal to more
customers.
Sofology has a strong technology-led omni-channel retail
approach operated through its network of 37 stores and
transactional website. Following over GBP5 million of investment in
technology development over the last eighteen months, it benefits
from innovative retail solutions in omni-channel tracking and
attribution, visualisation technology and personalized marketing
content delivery, with the potential for this technology to be
shared across the Group.
Using the strength of DFS's efficient operating platform the
Acquisition is expected to create near-term scope for material
value creation through the sharing of scale benefits in the
purchasing of advertising, interest-free-credit, upholstery and
other services. These synergy benefits will begin to be realised in
Sofology's business shortly after completion, with a near term
potential benefit of c. GBP4 million annually. Further earnings
opportunities will be available in the medium to long-term through
revenue synergies and also better utilisation of both companies'
warehouse facilities and delivery fleets, with the potential for
the enlarged group to benefit from tighter delivery radials and
thus increased van loads, in line with approach taken with Sofa
Workshop. No store closures will occur as a result of the
Acquisition and the store opening programmes of both DFS and
Sofology will continue given the proven ability of the two brand
fascias to trade successfully alongside each other in multiple
locations.
Exceptional one-off costs of releasing the synergies of
approximately GBP5 million are expected to be incurred over the
next three years, principally associated with further technology
and additional people investment to ensure both businesses benefit
from leading technology and systems.
Driven by its differentiated brand proposition and investment in
technology and stores, Sofology has grown well recently with
overall revenue growth of 5% over the six months to 30 June 2017.
Sofology reported revenue of GBP143 million and, following the
impact of exchange rates on cost of goods sold and disruption
following the Sofology rebrand, an EBITDA loss of GBP2.7 million
over the twelve months ending 31 December 2016 with statutory loss
before tax of GBP8.9 million over the same period. EBITDA over the
twelve months to 31 December 2015 was GBP2.9 million. Its gross
assets were valued at GBP36.2 million as at 31 December 2016.
The Group anticipates the Acquisition will be EPS accretive in
its first full financial year post acquisition and will generate
returns materially above its cost of capital in the second full
financial year post acquisition.
Jason Tyldesley the CEO of Sofology, together with the current
Sofology management team, will continue to lead the business post
completion. In line with the approach we have taken with the
acquisitions of Dwell and Sofa Workshop, we anticipate that
Sofology will retain its current headquarters in Golborne, and
maintain full independent control over its customer experience and
all customer facing activities.
Acquisition Structure
Sofology is being acquired from its shareholders for an initial
enterprise value of GBP25 million payable upon completion. In
addition, there will be potential further consideration payable
approximately twelve months following completion, based upon a
multiple of seven times the underlying earnings before interest,
tax depreciation and amortization ("underlying EBITDA") generated
by Sofology over a future twelve month period less the GBP25
million consideration that will have already been paid.
The initial consideration will be financed through the Group's
existing cash resources and its new bank facility described below.
We currently expect any further consideration, if due, to be
satisfied from available bank facilities, however up to GBP25
million could be paid either in cash or shares at the discretion of
the Group's Board of Directors. While we anticipate that the
transaction will result in leverage remaining at above 1.5x in the
first financial year of the deal, we remain committed to reducing
leverage back to beneath 1.5x, through usual cash generation,
supported by planned working capital and other cash
initiatives.
Completion of the Acquisition is conditional upon the receipt of
clearance from the Competition and Markets Authority ("CMA") and
the Financial Conduct Authority ("FCA"). For the purposes of
transaction classification under the UK Listing Rules, the total
aggregate consideration payable is capped at GBP105 million.
Refinancing
Furthermore, taking advantage of its strong credit position and
business fundamentals, the Group is pleased to announce an
agreement to refinance its existing borrowings, retaining its total
facility size and covenants, but converting the current facilities
to a new lower-cost five-year GBP230 million revolving credit
facility structure. The new facility, maturing in July 2022, has
been arranged with a group of six banks. The financial covenants
remain unchanged from DFS's current GBP200 million term loan and
GBP30 million revolving credit facilities that were otherwise due
to mature in March 2020. The new facility will lower the cost of
the Group's debt financing from the financial year starting on 30
July 2017 by approximately GBP1 million per year. An additional
GBP100 million uncommitted accordion feature also provides further
potential headroom for any currently unforeseen future funding
needs. Unamortised issue costs in respect of the Group's current
facilities amounting to GBP 1.4 million will be written off
following this refinancing as part of the Group's finance charges
and will be treated as an exceptional item in the financial year
ending 28 July 2018.
Further announcements
DFS is scheduled to publish its post-close trading update on 10
August 2017, with results for the full year due to be published on
5 October 2017. We will also publish a further notification once
the CMA filing is made.
Ian Filby, CEO of DFS Furniture plc, commented:
"While the UK furniture retail market continues to be very
challenging, we remain focused on making strategic progress to
strengthen our position in living room furniture. This Acquisition
represents a clear opportunity for DFS to accelerate our proven
strategy of broadening our appeal, generating substantial long-term
returns for shareholders underpinned by well-understood
synergies.
Sofology's distinctive market position is a good fit with our
existing brands. Jason and his team should be congratulated for
creating a fantastic and fast-growing business and I'm looking
forward to working with Jason and the team as they continue to grow
Sofology as part of the Group. "
N M Rothschild & Sons Limited ("Rothschild") is acting as
financial adviser to DFS. GCA Altium is acting as financial
advisors to Sofology.
Enquiries: DFS (enquiries via FTI)
Ian Filby (CEO)
Nicola Bancroft (CFO)
Mike Schmidt (Director of Corporate Finance)
FTI Consulting
Jonathon Brill
Georgina Goodhew
Eleanor Purdon
+44 (0) 20 3727 1000
Rothschild (Financial Adviser)
Andrew Thomas
Omaier Akhtar
+44 (0) 161 827 3800
About DFS Furniture plc
DFS is the market leading retailer of living room and
upholstered furniture in the United Kingdom. We design,
manufacture, sell and deliver to our customers an extensive range
of living room furniture products. The business operates a retail
network of living room furniture stores in the United Kingdom and
Europe, together with an online channel. These have been
established and developed gradually over more than 47 years of
operating history. We attract customers to our stores and website
through our substantial and continued investment in nationwide
marketing activities and our reputation for high quality products
and service, breadth of product ranges and price points and
favourable consumer financing options.
About Sofology
Sofology is a specialist sofa retailer operating from 37 stores
across the UK and through a leading web platform
(www.sofology.co.uk). It was founded by the Tyldesley family in
1974 and offers a wide range of fabric, leather and reclining sofas
in addition to corner sofas and sofabeds. Sofology operates six
warehouses strategically located to cover the UK from North to
South. The head office is located in Golborne.
BGF previously invested GBP10 million in March 2016 for a
minority interest to support Sofology's expansion plans in the
UK.
This information is provided by RNS
The company news service from the London Stock Exchange
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