Talking Shop - Spring 2010


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Introduction


Welcome to the Spring 2010 edition of Talking Shop, our quarterly retail update.

Although Christmas trading gave many retailers the boost they needed, the sector has remained under pressure since the New Year. With fears about the eurozone debt problems, the prospect of a VAT increase looming large, a new coalition Government, uncertainty about public sector employment and a new budget on the horizon that is unlikely to be generous, these are uncertain times for the retail sector. For some businesses, however, the resurgence of private equity interest in the sector has provided a welcome exit opportunity. The excitement and fierce bidding war surrounding businesses such as Pets at Home and Hobbycraft demonstrates that the money is out there for the right investment.

There is little doubt that if you are a retail business that has managed to trade through the global economic crisis and, like many, keep like for like sales figures on par or better, it is likely that you are by now a very tightly run ship, well managed, with costs under control and positioned for growth and investment. Thus, you would be of particular interest to private equity.

In addition, if you are a private equity backed business and have been so for four or five years, there is little doubt that the excitement in the market over Pets at Home and Hobbycraft and the multiples being paid for retail businesses with the right pedigree (pun intended), such will not have been missed by your private equity investors.

In this edition of Talking Shop, we turn the spotlight on:

  • Preparing your business for private equity – in this market private equity investment seems the quickest route to an exit for owners of retail businesses. We examine what a private equity house is looking for in an investment and how you can prepare your business;
  • TUPE – Don't let it catch you out – TUPE is a tricky piece of legislation which applies to business transfers and service provision changes. Follow our simple guide to avoid being caught out; and
  • Adding value? – in light of the potential rise in VAT, in our third article we examine how promotions such as discounts or other rewards to loyal customers may have unintended VAT consequences.

If you have any questions or would like to discuss any of the issues raised in this update, please contact a member of our retail team.

David Roberts
Partner
Head of Leisure & Retail Group  

Preparing your business for private equity

Recently a number of high profile retailers have been acquired by private equity ("PE") houses demonstrating a renewed interest from PE in retail businesses. Most notable amongst these acquisitions are Hobbycraft which was acquired by Bridgepoint for in excess of £100m, Pets at Home which was acquired in a secondary buy-out by KKR for £955m and Cath Kidston which was acquired by TA Associates for £100m.
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TUPE - Don't let it catch you out

Drives to improve efficiency in this challenging economic climate mean that more retailers are making decisions to outsource, insource, sell or buy parts of their businesses.
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Adding value?

In a recent post-election poll by the BBC, 24 of 28 leading economists expected VAT rates to go up; the majority predicting a rise to 20% by the end of 2011. A 2.5% increase in VAT, predicted to raise over £11.5bn a year, looks attractive - yet the Coalition's "Programme for Government", published on 20 May 2010, does not mention VAT once. In his first TV interview as Prime Minister David Cameron refused to be drawn on the topic, instead stating simply "You're going to have to wait for the first Budget."
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The information contained in this update is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action.