High street fashion retailer Next has acquired a 25 per cent stake in Reiss and could take control of the upmarket UK fashion chain by mid-next year.
The FTSE 100 group will make a £33m equity investment, acquiring shares from majority investor Warburg Pincus and the group’s founding Reiss family in proportion to their existing holdings.
It will also lend the fashion retailer £10m. Warburg Pincus said the transaction implied an enterprise value for Reiss of roughly £200m. The company has net debt of about £60m.
Next also has an option to acquire an additional 26 per cent at a slightly higher price at any time before July 2022, taking its stake to 51 per cent and allowing it to consolidate Reiss’s sales and profits.
Following the acquisition, Reiss’s online operations will migrate to Next’s Total Platform unit, an Ocado-like technology service that allows brands to use Next’s formidable IT, warehousing and distribution infrastructure for their own ecommerce operations.
Analysts expect Total Platform, which at present has a single upmarket childrenswear retailer as a client, to become an increasingly important part of Next’s business.
Adam Cochrane at Citigroup has valued it at about £350m. Paul Rossington at HSBC said it allows Next “to move into the high-margin ecommerce solutions service market” with a fully integrated proposition that includes collecting and returning items in stores.
Lord Simon Wolfson, chief executive of Next, described Reiss as “an outstanding brand with enormous potential” and said he was “excited to see what can be achieved through the combination of Reiss’s exceptional product, marketing and brand building skills with Next’s infrastructure”.
The acquisition will have no effect on profits in the current financial year but is expected to make a positive contribution thereafter. Next is not usually an acquisitive company but did submit an initial bid for Sir Philip Green’s Topshop chain, which was eventually acquired out of administration by Asos.
Reiss was founded in 1971 by David Reiss, originally as a menswear brand, and now sells classic men’s and women’s fashion from 79 stores and 104 concessions in 14 countries.
In the year to February 1 2020, sales rose 22 per cent to £227m and Warburg Pincus, which acquired its majority stake in 2016, was considering exit options. But the group was hit hard by the pandemic, which has forced the closure of non-essential retailers in many countries.
Its product lines are heavily biased towards occasionwear and formalwear, and many of its stores are in city-centre locations, which have seen the steepest declines in footfall.
Chief executive Christos Angelides said Reiss had quickly switched to more casual and leisurewear and that online sales had grown strongly — but not by enough to offset the closure of stores and concessions.
The arrangement with Next, where he spent 28 years of his career, would be “quicker, cheaper and less risky” than trying to build the required infrastructure itself, he added.
He said Reiss would also benefit from the “exceptional ability” of Wolfson, who has overseen Next’s transformation from a store and catalogue retailer to one that now makes a majority of its sales online.
Next shares were little changed in midday trade on Wednesday, though they are up by two-fifths over the past year as initially bleak forecasts about the impact of the Covid-19 pandemic were scaled back.