A dozen potential buyers have requested detailed information about JJB Sports, the ailing British sports retailer that put itself up for sale at the end of August. They are said to include retailers as well as private equity firms.
While the board said it was considering all offers, the company is likely to be sold in a pre-packaged administration – a form of bankruptcy proceedings - which would make it easier for the buyer to acquire only some of JJB's nearly 180 remaining stores, and to run the acquired business without interruption and uncertainties about debts. JJB has already warned its shareholders that JJB shares could become worthless.
The retailer that is regarded as most likely to bid for at least some of the stores is Sports Direct International, the rival that has steadily undermined JJB by drawing its customers into Sports Direct stores with cheaper prices and sometimes-lurid displays. Some suppliers are anxious to keep JJB out of Sport Direct's hands, because it is the only remaining large-scale integrated sports retailer in the U.K. selling a wide range of performance sports products and equipment in a relatively appealing store context. In any case, it is likely that the U.K. competition authorities would want to study any sizeable acquisition of JJB assets by SDI.
David Whelan, who established JJB Sports in 1971 and sold out five years ago, is among the parties that publicly expressed interest in buying 30 to 40 of the stores – albeit not the JJB name or the entire company. Whelan already acquired JJB's fitness centers and the accompanying stores three years ago. He transformed them into DW Sports, which became a member of Intersport U.K. last year.
Décathlon is recurrently mentioned as a potential buyer, but the French retailer described the reports as “complete fantasy.” It has only 12 stores in the U.K. so far and wants to expand, but it has hardly ever resorted to acquisitions and said that buying JJB was not in the cards at all.
Private equity firms and turnaround specialists that have reportedly taken an interest include GA Europe, OpCapita and Better Capital. However, the Financial Times reported last week that Better Capital had refrained from submitting a bid.
The JJB sale is handled by David McCorquodale, corporate finance partner at KPMG, who previously organized the pre-packaged administration of Blacks Leisure to JD Sports Fashion. He is therefore familiar with this formula and with many of the parties involved in the U.K. sports market. Exchanges with the interested parties are expected to be rounded off quite rapidly, in about two to three weeks.
The pre-pack formula allows the buyer to take over stores from the administrator, but then return them after a few months if he is unable to negotiate better rents from the landlords. This arrangement is particularly judicious given the estimated gap of 20 to 25 percent between the rents currently paid in the U.K. retail business on the basis of agreements sealed in much more buoyant market conditions a few years ago, and the price they would get in the current market.
As previously reported, JJB's situation has steadily deteriorated in the last years. Before the start of this year, it had already launched three fund-raisings and staved off administration twice. It still managed to draw £30 million (€37.1m-$48.6m) from a group of investors in April, led by Dick's Sporting Goods: The American retailer invested £20 million (€24.7m-$32.4m) to help finance a turnaround and held the right to take part in a second fund-raising early next year, which could have given it a majority stake in JJB. However, JJB has since issued another profit warning, as its sales around the European football championships proved disappointing and it quickly transpired that it would need its extra funding earlier than expected. Dick's had to write off the entire value of the investment in August.