M&M Direct (United Kingdom) - Nov 2007

unquote
01 November 2007

Tweet
Facebook
LinkedIn
Google plus
Send to

TA Associates has backed the secondary management buyout of online discount retailer M and M Direct Ltd from ECI Partners. The value of the deal was not disclosed, although reports suggest it was in the region of £90m. TA takes a majority stake in M and M following the buyout. TA became aware of M and M after it held discussions with ECI regarding the acquisition of Late Rooms.com, another of ECI’s portfolio companies which was acquired by First Choice Holidays Plc in January 2007. When ECI mandated Deloitte to run a process to facilitate its exit from the business, TA was well-placed to win the deal having developed a good relationship with management. TA was drawn to the M and M opportunity as the retail value market in which it operates has demonstrated rapid growth in the UK in recent years compared with static growth in the UK’s retail apparel market as a whole. “M and M has a clear and attractive consumer proposition selling branded items at discount prices through a flickto- click model and this attracted us to the company,” commented TA’s Ajit Nedungadi. Royal Bank of Scotland together with M and M’s incumbent bankers Barclays provided a £30m senior debt package to support the deal. TA’s own mezzanine fund provided £10m of mezzanine finance.

Exit deal

ECI has netted returns of 4.4x from the sale of M and M and an IRR of 59% over its three-year holding period. Having received a number of approaches from trade buyers, ECI appointed Deloitte to run a formal process. ECI cited the price and certainty offered by TA as key to it winning the deal. Over the course of its involvement with the business, ECI grew M and M by expanding its product line from primarily sports apparel to include fashion and lifestyle clothing. Sales rose strongly at 18% per annum and profits at 28% per annum on the back of this expansion into new areas. ECI also helped to grow the business by investing in its IT systems and improving the company’s customer identification methods.

ECI acquired M and M in August 2004 from its two founders (30 August 2004, page 23). The value of the deal was not disclosed, but was believed to be worth £35m, with ECI investing £15m for a majority stake. The deal was structured as a management buy-in and saw Mike Tomkins join as CEO alongside a new financial director and chairman. ECI’s strengthening of M and M’s senior team was another factor instrumental to the company’s growth.

Company

Based in Leominster, M and M specialises in purchasing end-of-line clearance stock from major brands and selling those products at substantial discounts. The company was founded in 1987 as M and M Sports, selling solely sports apparel. M and M then broadened its offering and now sells more than 230 brands of men’s, women’s and children’s apparel and footwear, including Adidas, Animal, Levi’s, Miss Sixty, Nike, Puma, Quiksilver and Timberland. M and M has a turnover of £80m. People

Chris Parkin led the deal for TA and Ajit Nedungadi is the managing director of TA. Both join the board of the newco. David Ewing and John Hayhurst led the exit for ECI. TA has appointed Steve Robinson, the former CEO of Tesco Direct and previously finance director of Argos as M and M’s new CEO. Former CEO Mike Tomkins remains involved as a non-executive director. Colin Robertson worked for Royal Bank of Scotland and David Rimmer worked for Barclays.

Advisers

Management - Eversheds, (Legal)Purchaser - KPMG, Alan Kennedy (Corporate Finance)Purchaser - McFarlanes, Ian Martin (Legal)Vendor - Deloitte, Anup Shah, Claire Frangou, Steve Burden (Corporate Finance)

Sourced from: UK & Ireland unquote" 357 (Nov 2007)