Monday, August 27, 2007

Jack and Vera... The Takeover Team???

It has been described as a 'Tsunami of money' just waiting to be unleashed. A time for 'Mercenaries' to make money. I have even had an email naively suggestion that I could get 'privileged information' for a small fee.. What is it? The estimated $300bn that is still sitting in Private equity funds world wide just itching to get into the takeover market.

I have a few problems with this. Number one, anyone offering 'privileged information' can only be talking about inside information or a guess at takeover targets, neither interest me as the first one would land me a spell in the local Swiss Prison (which may not be a US Federal Penitentiary, but it is still prison and meeting Mr Big in the showers would be an unpleasant experience on any continent). The second one is relying on someones research that sends out emails in capital letters and red titles.. I am not a presentation snob (as can be seen from the blog!) but a little more effort to be less gimmicky would have gone a long way. Now if Goldman Sachs was offering free research I would have kept quiet and started a hedge fund.

But, regardless of the red titles and the spivvy language, they do have a point. There is a lot of cash still waiting to go into takeover targets even with the credit crunch where it is, in fact the credit crunch is making valuations much more attractive to private equity firms looking for bargains.

One such firm to take a look, if you are interested in identifying something in the retail space, is Arev Brands. But first a little history..

As a youth growing up in Yorkshire and having a father who worked a month on and a month off on the Oil Rigs, my television viewing was determined by an older sister and my mother. With my older brother ensconced in his bedroom with his own TV and unwilling to battle alongside me, my entertainment options were limited. Football and generally wondering the streets on my bike were usually the order of the day, however, rain and snow often caged me in the house. It was then that my television horrors began. Life indoors was a seemingly endless round of Coronation Street, Crossroads (anyone under 30, look it up) and Emmerdale Farm.

I only revisit this scar on my mental Rolodex (again..under 30 look it up) because I saw something highly amusing which proves that investment bankers do have a sense of humour.

We locked horns in 2006 with Arev Brands. We made a bid for Hardy Amies Plc the AIM listed couture house, all was going along swimmingly until the deal was snatched from under our noses. Arev, founded by Jon Scheving Thorsteinsson, a former right-hand man of Jon Asgeir Johannesson, the chairman of The Baugur Group, are hailed as the new 'Baugar' and have notched up some impressive buys alongside Hardy Amies the most recent being 'Blooming Marvellous'.

Judy Lever and Vivienne Pringle sold Blooming Marvellous, the 14-store chain, to Arev, the Icelandic retail investor, for a price believed to be around £5m.

The so-called mumtrepreneurs built the chain from scratch in 1983 after failing to find alternatives to frumpy, old-fashioned and tent-like maternity dresses and trousers. Lever, a documentary director for Thames Television at the time, and Pringle, a director at an ad agency, set about finding suppliers and factories in their spare time around Lever's kitchen table.

Despite having six children between them, they grew the business significantly. Blooming Marvellous now has subsidiary brands, such as Mini Marvellous, and a website and mail order business. It is pitched at the affluent "yummy mummy" market with a cult following online and stores in upmarket areas such as Fulham in London, Bath and Winchester. Last year it won two awards at the Pregnancy & Birth Awards. Arev plans to increase the number of Blooming Marvellous stores to 25 and position the chain alongside Mamas & Papas, the upmarket family-run retail group, according to an executive close to the company.

The mother and baby wear market is currently being reformed by a round of consolidation: earlier this year market leader Mothercare bought its biggest rival Early Learning Centre for £85m. The Blooming Marvellous acquisition will further raise Arev's profile in the UK.

Arev is slowly building a stable of boutique UK retailers. It already owns Ghost, the womenswear chain, Hardy Amies, the one-time dressmaker to the Queen, Linens 'n' Things, the homewares retailer, luxury brand Duchamp, Limeys, the Midlands retailer, and Cruise, the Glasgow-based fashion designer. Earlier this summer it bought Mountain Warehouse, the outdoor clothing retailer, for £15m.

Arev is believed to be considering selling its Jones the Bootmaker chain, which no longer fits into its strategy of acquiring upmarket or niche businesses with expansion opportunities. Its strategy is similar to that of Baugur, which owns a raft of UK high street brands such as Karen Millen, Oasis, Iceland and House of Fraser.

It is certainly worth keeping a close eye on what the group are doing with these brands, we are, as we are holders of Hardy Amies and they seem to be doing all the right things excepts PR on the share price. At today's price Hardy Amies has a market cap of only £2mn sterling. This for a brand that has been around for 60 years, was dressmaker to the Queen, that has a fabulous reputation and an eminently marketable brand. At this price we think it is a give away.

Although we were gazumped by Arev, we hold no grudge, in fact we are warming to them. Especially since it looks like someone in the group suffered the same television Hell as I did as a child.

They have a private equity arm called Kcaj.

Observers have suggested the company's penchant for all things British is hinted at in its seemingly obscure choice of names: Kcaj and Arev spelt backwards is 'Jack and Vera' the star characters in Coronation Street.

I feel your pain guys, I feel your pain....

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