Next buys 25% stake in Reiss, has option for majority buy
In a surprise move on Wednesday, one of the UK's most successful giant-sized fashion retailers, Next, said it would be buying a big-but-minority stake in one of the most respected mid-sized names, Reiss. And it has the option to take a majority stake as well.
The two have agreed a deal for Next to acquire a 25% indirect interest in Reiss Limited through the acquisition of shares from existing shareholders in the holding company of the Reiss business. And on completion of the deal (which will have to wait for regulatory clearance), Next will make an equity investment of £33 million and a debt investment of £10 million, financed from its own cash resources.
What's more important though is that option for full control. Under the terms of the deal, Next has the option to acquire a further 26% at pre-agreed terms before July 2022. That would give the company 51% of the firm.
Reiss is currently celebrating its 50th anniversary having been founded in 1971 as a menswear brand by David Reiss. It now sells womenswear and accessories too. In May 2016, a majority stake was acquired by US private equity firm Warburg Pincus, although the Reiss family kept a minority stake.
Also important, its highly-regarded CEO Christos Angelides, who's been in the role since 2017, will remain in place. It's interesting that he previously worked for Next for 28 years and spent 14 years on its board as group product director.
His ongoing role as CEO reflects the fact Reiss will retain its management autonomy and creative independence. It will have its own independent board and continue to be based in London.
But there will be some changes and it's no surprise that the brand’s websites and online operations, both in the UK and overseas, will be operated through Next's Total Platform. Total Platform will also provide warehousing and distribution services for Reiss's retail, franchise, wholesale and concession businesses, all of which will continue to be operated by Reiss. The brand should go live on the platform in just under a year’s time.
The company also said the intention is that Next’s infrastructure can serve “as a launch pad for Reiss's growth plans, both in the UK and overseas”.
Reiss hasn't yet released its results for the year to this February, but we assume that when it does, it will be showing some of the pain of the pandemic, like most other fashion retailers. And it's unclear whether that pain is what motivated the sale of the stake to Next.
That said, pre-pandemic in the year to 1 February 2020, Reiss achieved a sales rise of 22% to reach turnover of £227.4 million. EBITDA for the year climbed significantly higher than sales, up 51.6% to £29.3 million.
It currently operates in 14 countries from 79 stores, 104 concessions and via wholesale and franchises.
The motivation for Next to buy an operation that’s positioned at a higher price point than its existing core chain is clear. Reiss is a well-respected operator in the UK fashion sector and abroad and, like Next itself, has always been regarded as a well-run company with bright future prospects. Next is in a very acquisition-hungry phase at present and has acquired a number of businesses in recent periods, including the Victoria's Secret UK operations.
Next CEO Simon Wolfson said Reiss “is an outstanding brand with enormous potential and a first class management team. We are excited to see what can be achieved through the combination of Reiss's exceptional product, marketing and brand building skills with Next's Total Platform infrastructure”.
And Angelides added: “I believe the partnership will be transformational for Reiss's operational effectiveness. Next’s infrastructure will ensure Reiss is not only more efficient as a business but more effective at serving its customers directly through Reiss stores, at Reiss.com, and through its worldwide partners. Whilst we will continue to focus on creating authentic and timeless collections, today's announcement provides a great opportunity for Reiss to realise the Brand's global potential as a Modern Fashion House”.
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