ASOS, the online fashion and cosmetic retailer, has acquired Topshop, Topman, Miss Selfridge and HIIT brands for US$362.7 million.
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Nick Beighton, CEO, commented, “We are extremely proud to be the new owners of the Topshop, Topman, Miss Selfridge and HIIT brands. The acquisition of these iconic British brands is a hugely exciting moment for ASOS and our customers and will help accelerate our multi-brand platform strategy. We have been central to driving their recent growth online and, under our ownership, we will develop them further, using our design, marketing, technology and logistics expertise, and working closely with key strategic retail partners in the UK and around the world.”
This acquisition represents a compelling strategic opportunity in support of ASOS’s mission to become the number one destination for fashion loving 20-somethings worldwide. These are strong brands that resonate well with its core customer base. Brand equity is strongest in the UK and they have an established presence in both the US and Germany, two of ASOS’s key strategic markets.
The ASOS multi brand model has ASOS brands at the core, supplemented by a curated edit of the best product from the most relevant brands globally. This transaction allows ASOS to bring iconic brands in-house, allowing it to overlay core strengths and transform them into leading digital first brands. As part of this, the acquired brands will join ASOS’s Venture Brands portfolio alongside others including Collusion, AsYou and Reclaimed Vintage. The company will retain its established brand and customer positioning, which is differentiated from its core ASOS Design and other ASOS Brands. This enhances its ability to increase choice for customers offering different customer styles, hero product and price points across ASOS Brands.
The brands acquired are strong consumer facing brands that have continued to grow through key channels and ASOS sees a significant opportunity to drive further growth for these brands globally. The company will do so through applying its industry leading design talent and online retail experience. They will also benefit from investment into customer engagement and brand positioning in line with existing model.
Beyond this, ASOS will work to maximise the opportunity for the brands global distribution. Its international warehouse infrastructure and localised online experiences will support continued growth through its own platform. In addition to this, there is significant scope for selective development of strategic retail partnerships. The company sees particular opportunity to increase the brands’ reach and accelerate US strategy via partnership with Nordstrom in this key market.
ASOS will work to integrate these brands into its business quickly. The capacity to do so is supported by the company’s ability to use existing warehouse and technology infrastructure. In addition, there will be a transition of c.300 employees across design, buying and retail partnerships. As part of the integration process, the company will undertake a thorough review of the supply chain to ensure it complies with all its Fashion with Integrity principles.
Across the remainder of the financial year, ASOS will work to re-engage suppliers and rebuild stock to support future trading plans. As part of this, the company has worked with the administrators to ensure future continuity of supply and have taken on and placed some purchase orders accordingly. Its familiarity with these brands and experience developing and running in house brands, together with well-developed technology and warehouse infrastructure, gives the company confidence in its ability to execute the transition with as little disruption as possible.
The transaction values the brand assets at US$362.7 million and is fully cash funded from existing cash reserves. Additionally, ASOS will purchase U$318.2 million of stock upfront to support initial trading before migrating the brands into the normal working capital cycle. ASOS expects to retain a net cash position at HY21, typically the lowest point of the year.
In 2019, before impact of COVID, the brands delivered total revenues of approximately US$1.3 billion across all channels, reflecting the strength of the brands’ equity. Despite business and supply challenges over the last year, the brands continued to grow through online and retail partnership channels, with total revenues in 2020 of approximately US$362.7 million as brand sales via retail partners grew 16% and brand online sales grew 5%. Growth on ASOS platform has been comfortably ahead of this level, at 41% in P1 FY21.
In FY21 ASOS expects any incremental EBITDA to be offset by initial investment and ramp up costs as it focuses on integration, engaging with retail partners and rebuilding stock to support trading plans. Additionally, the company expects to incur one-off restructuring and transaction costs of c.US$212.2 million.
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ASOS anticipates incremental sales in FY22 to be broadly flat to FY20 acquired brand sales as it focuses on driving growth on its ASOS platform and through select strategic retail partnerships. The acquisition is expected to be margin accretive, with strong operating leverage given the relatively low incremental costs of operation once integrated onto the ASOS platform. It is expected that the transaction will deliver a double-digit return on capital (post tax) in the first full year.