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French Connection buyer will need 'deep pockets'

French Connection is likely to be bought by another fashion retailer if a deal goes ahead, industry sources have indicated. 

Founder Stephen Marks is exploring a potential sale of the business he set up 46 years ago. Advisers at investment bank Numis Securities have been approaching prospective buyers for Marks’ 42% share in the company.

In a statement French Connection said: “The board confirms it is currently reviewing all strategic options to deliver maximum value for its shareholders, which includes the potential sale of the company. There can be no certainty that an offer will be made for the company, nor as to the terms on which any offer will be made.”

Retailers including Mike Ashley – who owns a 27% stake in the brand – and Danish brand house Bestseller, which bought Toast from French Connection in April for £23.3m, have been mooted as possible buyers.

A source close to the company said: “Mike Ashley would make sense. It needs to be someone with a wider network who really understands the market.

“For efficiency, it makes sense to go to an existing fashion group. French Connection is planning to move into profit by the end of the year, but there are a lot of overheads and legacy costs,” she added.

Group revenue at French Connection fell by 2.4% to £58.1m in the six months to 31 July 2018, which the retailer blamed on a reduced store portfolio and “tough retail trading”. Two stores closed during the period and one concession opened. Like-for-like sales across the UK and Europe slipped by 7% but wholesale revenue was up by 6.2% to £30.8m. 

The underlying operating loss before tax was reduced to £5.5m, compared with £5.9m the previous year.

One source said interest from private equity firms may be limited if French Connection swings back into the black: “If it returns to profit, as they say it will, it will make it less appealing to turnaround buyers such as Apollo [Global Management] and Alteri [Investors], who want to buy distressed businesses.

“Private equity is not particularly interested in retail at the moment – certainly not fashion retail – because of the difficult trading environment.

“There’s also not a lot of capital around at the moment for the UK trade buyers. We might see some wealthy individuals or international trade buyers making a bid.”

Nick Bubb, independent retail consultant, agreed that interest could be hampered by the tough trading environment: “French Connection is not in great shape. It’s a tough time for fashion retail, so I don’t expect there’ll be a huge amount of interest.

“French Connection has always been considered quite expensive, so the product has to be just right. When it goes off from time to time, it’s seen as too expensive. Stephen Marks has never been able to see that. Scaling back on the store portfolio and focusing on wholesale could be the way forward.”

Retail analyst Richard Hyman said any buyer would need a clear strategy: “French Connection is quite a challenge. Its product has been variable, and its pricing architecture hasn’t always been joined up.

“Fashion retailing is not for the fainthearted – it’s the most oversupplied sector. The next few years will see a lot of casualties. Whoever takes it on needs to have a very clear idea of what they’re going to do and have deep pockets to see it through the timeframe that this is going to take.”

 

The Drapers Verdict

French Connection may have a difficult time trying to find a buyer for Stephen Marks’ stake in the current turbulent market. Although it is not an obvious cash cow for private equity firms, it could be an exciting opportunity for a passionate retailer who is up for the challenge of returning the high street chain to its former glory.

Mike Ashley certainly has the cash and network available for further growth opportunities for the business. However, any buyer must be willing to invest in the quality of the product to justify its higher price points and in the brand’s image to make it desirable to stockists and consumers alike.

 

Readers' comments (5)

  • I can see some mileage in the Women's side, but the Men's lacks credibility and is too difficult to get back to form, so it is obvious where the next owners should take it.

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  • Oh please not again Mike Ashley. Has he not enough to do with HoF?

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  • It’s another Jaeger. Deep pockets? Hilarious.

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  • French Connection 'Expensive'? Hardly. It didn't trade up when it needed to and got left in a 'No Mans Land' so Bubb's comments are totally bizarre and factually incorrect. If they were expensive then they might be in better position in the market place than they are now.

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  • I can't remember that last time i read an article saying FC actually was in profit, so it appears to have racked up constant losses for the last few years, not surprised Mr Marks has had enough, no mention of current debt, why would someone pay good money for a loss making company, good will ??,if FC Brand is so strong you "need deep pockets to buy" why is it losing money, potential !!! those days are surely long gone in the current market adjustment.

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