Home shopping business valuations rose during recession

New analysis from Catalyst shows that valuation multiples for home shopping companies rose significantly in 2010 and 2011 despite the wider gloomy economic climate.

Trade buyers, led by many of the major retailers have been instrumental in this rise, a prime example being Morrisons’ £70 million acquisition of Kiddicare in February 2011, the multiple paid estimated at 23 times EBITDA.

These high valuations have been driven by strong competitive tension with private equity firms keen to spend funds under-utilised during the recession and trade acquirors chasing the same assets. The desire of trade buyers to rapidly enter new markets, or to add thousands of new products quickly to their existing online offering to boost flagging sales, has been a key driver to the upward movement of valuations in the opinion of Catalyst.

Private equity (PE) has also been active in the home shopping sector, involved in 25% of all home shopping disposals in 2011. Amongst the more prominent examples were the sale of Lovefilm, an investment by DFJ Esprit, to Amazon for £200 million and the sale of Wiggle by ISIS for 15 times return.

PE activity was not totally focussed on selling assets though, with a number of new investments including Inflexion’s acquisition of Ideal Shopping Direct for £62 million. Catalyst’s view is that as the online retail market increases in size, there will be fewer opportunities for new mid-market PE investments as multi-nationals such as Amazon, Tesco and others to assert their dominance online as well as offline. Further evidence of this is provided by a number of major executive hiring decisions made in the latter months of 2011 by the likes of Marks & Spencer, Tesco and others to boost management capability in their online divisions as competition for talent intensifies.

Catalyst concludes that activity will remain high in 2012 with a number of high profile PE and non PE owned assets likely to enter the market during the year. Social networking and mobile commerce will become central to the development of the home shopping market, leading in turn to serial acquirers investing in these technologies.

Catalyst’s Home Shopping M&A Report Spring 2012 is available here and includes an analysis of current industry trends, the international market and prospects for M&A in the sector. For more details or to discuss an opportunity contact Partner Steve Currie on +44 (0) 20 7881 2980.