While Next Plc, FatFace and Rothschild, all declined to comment on speculation they were in talks over a potential deal, industry experts agree it is likely and could happen very soon.
Inside the Next-FatFace deal
On 11 October, reports surfaced that Next Plc was adding the “finishing touches” to a takeover proposal for FatFace and the deal could happen as early as the end of this week.
With the deal reportedly worth in the region of £100m ($123.08m), it would mark the latest feather in Next’s cap whose acquisitions have recently included fashion brands Cath Kidston, Joules, children's brand JoJo Maman Bebe and homeware brand Made.com. It is also the majority shareholder of fashion brand Reiss after acquiring another stake in the company last month.
Next Plc has its sights set on the B-Corp company after it enjoyed strong sales in its last financial year.
In the last few years, it has run into turbulent times, which isn't unusual given many of its peers experienced the same.
It operates out of 180 stores and has a presence in the US and Canada, albeit a small one.
Last May, its owners reportedly appointed independent financial advisory group Rothschild to advise on strategic options after it was taken over in 2020 by lenders, including Alcentra and Lloyds Banking Group. At the time it was speculated to be mulling various options which could include a sale of the business.
Here’s why the deal matters
While Next Plc’s recent financial statement has been nothing short of impressive – group sales jumping by 5.4% to £2.6bn for the HY and a 5.1% jump in operating profit to £456.4m – leading to it hiking its annual profit guidance, FatFace has performed equally as well.
Sales at FatFace rose by 15% to reach £282m in the year to 27 May 2023, significantly beyond pre-pandemic levels.
“This means it should generate immediate returns for Next without the need for significant additional resources,” Alice Price, apparel analyst at GlobalData asserts.
For Next, the addition of FatFace to its portfolio may be the key to unlocking its dream of strengthening its mid to upper-priced brand offering.
Price says: “It [Next] recognises consumers are prioritising higher quality products to achieve better value for money during the cost-of-living crisis, so FatFace’s market positioning should help it achieve this goal.”
Meanwhile, for FatFace, this is a great opportunity to increase its customer base and bolster its growth potential.
The brand already has affiliations with Next Plc having launched on its Total Platform earlier this year where Next fulfils orders from its third-party brands’ own warehouses within two days.
“Next’s superior online proposition and global reach will also allow FatFace to expand internationally, which has been a focus for the brand recently, with North America accounting for 7% of its sales and growing 20% in its FY2022/23,” Price notes.
While the deal is at this stage only speculative, Eleanora Dani, analyst at ShoreCap is convinced it is more likely to happen than not.
“Given the current market dynamics and Next's recent history of acquisitions, there is a reasonable likelihood that this deal could go ahead,” she says.
“It is particularly plausible as FatFace complements Next’s existing brand portfolio.
“Next may be eyeing FatFace for various reasons, mainly as an additional business with relevant brand equity to plug into its Total Platform. While for FatFace, being under the Next umbrella could offer increased financial stability and a wider distribution network.”
Key takeaways for the fashion industry
It’s a challenging time for fashion retailers as sales continue to wane on the back of increased costs of living and flagging consumer confidence.
Consumers are making more considered purchases and they're looking for purchases that offer value.
FatFace has fared well over the years having executed a pretty sound business strategy.
It has partnered with brands like M&S and Next to increase brand reach and has substantially invested in its digital transformation and overseas growth, which appears to have paid off.
In addition, FatFace has appealed to consumer demand for more sustainable options and in 2021 partnered with Thrift+ to offer consumers access to its clothing donation service. It is also sustainably sourcing 100% of its cotton having partnered with the Better Cotton Initiative.
While Next is a major fashion corporation, with global recognition and clout, FatFace will have struggled to secure the same reach given its size and single-brand approach.
It will have been a similar case for other brands that Next has taken under its wing recently like Joules and Cath Kidston so in terms of synergies, FatFace is the ideal acquisition target.
Independent fashion brands that are taking steps to stabilise themselves for the future – investing in digitalisation, sustainable production and global brand growth – are proving popular acquisition targets for larger brands that can help bolster their reach.
Reiss is another key example. Next recently increased its stake in the brand and is now the largest shareholder. It has been grasping international opportunities where it now operates in wholesale locations like Nordstrom and Bloomingdales. Having already operated on Next’s Total Platform the brand has greater access to Next’s extensive infrastructure which improves its expansion prospects in the UK and internationally.
The spate of acquisition activity seen recently such as Shein taking over a third of Forever 21's US operator Sparc Group and Frasers Group purchasing five fashion brands from sports retailer JD Sports, suggests larger fashion players like M&S and Next, are benefitting from the consumer demand for convenience and wider choice. This can alone be evidenced by M&S’s recent return to the FTSE 100 thanks to better-than-expected clothing sales growth after the introduction of several third-party brands such as sustainable fashion brand Nobody’s Child and sports brands Skechers and even adidas being added to its portfolio.
Our signals coverage is powered by GlobalData’s Thematic Engine, which tags millions of data items across six alternative datasets — patents, jobs, deals, company filings, social media mentions and news — to themes, sectors and companies. These signals enhance our predictive capabilities, helping us to identify the most disruptive threats across each of the sectors we cover and the companies best placed to succeed.
