Brait foils another IPO with New Look deal

John Gnodde, CEO of private equity giant Brait, is developing a knack for thwarting British companies' plans to list on stock exchanges.

Brait, which is 35% owned by South Africa's richest resident, Christo Wiese, revealed on Friday that it would buy 90% of New Look, the UK's second-largest discount retailer of women's clothing, for R14.1-billion.

This pre-empted New Look's plan, mooted earlier this year, to list on the London Stock Exchange.

In an interview, Gnodde laughed off suggestions that Brait had become something of an initial public offering slayer. But the New Look deal comes just weeks after Brait also put paid to plans by Virgin Active to list on the JSE, when it swooped in to buy 80% of the gym group for R12.3-billion.

The New Look transaction is perhaps Brait's most ambitious punt, given that 43% of women and teenagers shopped at the 46-year-old British retail chain at least once last year. New Look expanded into China last year and plans to open 80 stores there by the end of its financial year.

Gnodde said Brait had eyed New Look since last year, but struck up talks with management only earlier this year. It will buy the company from two private equity companies, Permira Holdings and Apax Partners. New Look's founding Singh family and management will keep the remaining 10%.

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On Friday, Wiese said he was ecstatic because "there are not abundant opportunities, so you have to look very carefully to find companies that tick all the boxes".

He said that although both the New Look and Virgin deals were done "while these companies were considering and preparing for an IPO, we offered them a deal where the seller obviously thought we gave them a better outcome".

The New Look deal provides an answer to what Brait will do with the cash it got in last year's megadeal, when it agreed to sell its stake in Pepkor to Steinhoff for R26.4-billion - for which it got R15-billion in cash and 200million shares in Steinhoff.

Gnodde said Brait had enough cash to finance this deal, so it would not have to sell any of its Steinhoff shares. "We are just using our existing facilities and cash. We have enough to cover both the [Virgin and New Look] transactions," he said.

Analysts were not entirely convinced, however. Sasha Naryshkine, MD of Vestact Asset Management, said Brait would "need some debt to do this transaction", and Syd Vianello, an independent analyst, agreed.

Gnodde said there were not many attractive prospects in South Africa or Africa at the moment, which was why Brait had looked to the UK. "It's about finding the right businesses that are market-leading and are in the right market sector, which is the broad consumer space ... companies that show the right, requisite growth and high cash flow conversion."

Another interesting element to this deal is that it makes the 73-year-old Wiese a more powerful player in the British fashion market.

Late last year, Wiese said he planned to launch a budget fashion chain called Pep & Co in Britain, aiming for 200 stores in five years.

On Friday, he said that although both New Look and Virgin Active were viewed as primarily British companies, they had strong growth prospects outside that country.

"If you look at Virgin, more than 60% of its ebitda [earnings before interest, taxes, depreciation and amortisation] is generated in South Africa. Similarly, if you look at New Look [and] you consider that 70% of its store portfolio is in the UK, obviously a lot of the growth opportunities will be outside the UK. And in both instances even outside the EU," he said.

Bryan Roberts, retail analyst at Kantar Retail in the UK, said Brait was a good fit for New Look, and would hopefully boost the retailer's business in Europe and China.