B&M European Value Retail buys French retailer Babou
B&M European Value Retail has announced the acquisition of Paminvest SAS, a discount retailer operating a chain of 95 stores trading under the name Babou in France for a total enterprise value of €91.2m.
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In a statement after the market close on Friday, the company said that the acquisition of Babou - whose stores are located mainly at out of town sites - will provide a base that will enable B&M to develop and grow in France its "proven and profitable" value retail model.
B&M's strategy for the Babou business is to apply its direct product sourcing and limited assortment SKU model, while refining the product offering. It said the average store size, location and customer base of Babou are comparable to the B&M Homestore operation in the UK.
The French market, alongside the existing German and UK markets in which B&M operates, has attractive dynamics including overall market size, the popularity of the growing discount channel and the healthy operating margins achieved by several incumbent operators, it said.
For the year to the end of January 2018, Babou delivered revenues of €347.1m, earnings before interest, taxes, depreciation and amortisation of €24.7m and pre-tax profit of €0.1m.
B&M said the deal is expected to be immediately earnings-enhancing. However, the first 12 months of ownership will be a period of transition as the acquired business realigns its product offering closer to that of B&M, which will impact the level of Babou's earnings in the short term.
Chief executive officer Simon Arora said: "B&M has made no secret of its European growth plans since its IPO in 2014. We are delighted that discussions with Babou over a three-year period have led to today's transaction, which provides us with a platform for future growth in a large and attractive market whilst also providing a stable and logical new owner for Babou.
"We would like to welcome all Babou's employees and stakeholders to the wider B&M family and look forward to a successful future together."
At 1330 BST, the shares were up 5.8% to 407.90p.
Liberum said there appears to be a good opportunity to refine Babou's offer by leveraging B&M management's supply chain strength and skill set.
"This can evolve the business from a more traditional grocer-type model towards B&M's disruptive, limited assortment discount offer, which has proved so successful in the UK. Babou's store size, location and, most likely, its customer base of Babou are similar to B&M's UK operations.
"The deal price is attractive and we can see why it makes sense, offering a cheap entry point into the French general merchandise market. On current numbers, B&M is currently trading on 13.1x EV/EBITDA, so the acquisition of Babou seems a good deal at a good price."
Still, the brokerage said there is likely to be much work required to improve Babou's profitability and competition may well mean the group does not have it all its own way.