After its $558 million takeover of The Finish Line in 2018 and its more recent $680 million acquisition of Shoe Palace on the U.S. West Coast, JD Sports Fashion continues its expansion in the U.S. with the announced purchase of a 100 percent stake in DTLR Villa.
Other acquisitions may follow, judging from a statement made by JD to the market on Feb. 3. “The directors believe there are a number of attractive acquisition opportunities becoming available that will support its expansion strategy,” said the company to justify a plan to raise around £464.2 million (€530.3m-$634.7m) through a placement of ordinary shares at a 2.5 percent discount from the stock market price. The placement would represent about 6 percent of the existing capital.
Based in Baltimore, DTLR is an athletic footwear and apparel streetwear retailer founded in 1982. It currently operates from 247 stores across 19 states, principally in the north and east of the U.S.
The transaction is subject to customery closing conditions including a review by anti-trust authorities, but JD says it should be completed before the end of the first quarter.
The target of the acquisition is currently majority owned by the New York-based private equity firms BRS & Co. and Goode Capital, JD and DTLR anticipate completing the acquisition during the first quarter. The total cash consideration for the acquisition is $495 million, of which around $100 million will be used to repay existing debt.
In the 52 weeks ended Feb. 1, 2020, DTLR delivered Ebitda of $45.6 million. After recognizing a charge for depreciation and amortization of $24.7 million and net funding costs of $19.3 million, DTLR delivered a profit before tax of $1.6 million. The gross assets DTLR’s balance sheet were $293.7 million as of Feb. 1, 2020.
JD said the purchase is being funded from its own cash resources and existing bank facilities
The acquisition of DTLR will enhance JD Sports’ presence in the north and east of the U.S., complementing its existing JD and Finish Line banners as well as Shoe Palace on the West Coast.
”Like Shoe Palace, DTLR pride themselves on the deep connection they have with their consumers and the active role they play in the communities that they serve. As such, we intend to retain the DTLR Villa fascia and its proposition,” said Peter Cowgill, JD Sports’ executive chairman.
Originally named Downtown Locker Room, the company was re-branded as DTLR and merged with Sneaker Villa in 2017. DTLR’s management, headed by Glenn Gaynor and Scott Collins, who will be continuing in their roles as co-CEOs, will also be reinvesting a portion of their proceeds back into DTLR in exchange for a stake of about 1.4 percent. Put and call options to enable exit opportunities for the management have been agreed and will become exercisable after a minimum period of three years.
In December, the company pulled out of a deal to buy Debenhams, whose brand and website are now being sold to a British online fashion retailer, Boohoo, for £55 million (€62m-$75.1m).
Reportedly, JD also held talks with the U.S.-based Authentic Brands Group about a possible takeover of TopShop, one of the fashion chains owned by the bankrupt Arcadia group. However, another U.K.-based online retailing platform, Boohoo, has confirmed that it is in exclusive negotiations to buy TopShop and other Arcadia assets.
Analysts at Shore Capital have been reported as saying: “We are not that surprised that the JD Board are now considering an equity raise given its global ambitions and the potential merger and acquisition opportunities that might arise from the fallout of Covid in the retail sector both in the UK and internationally.”
“In our view, JD Sports remains a best-in-class retailer with excellent cash generation (reflected in its strong balance sheet) and tight cost and stock controls. To bolster its balance sheet with a potential fund raising will enable the company to widen its already extensive corporate development net, as it looks for further bolt-on opportunities.”