Ashley’s empire grows: Frasers picks up nearly 20 per cent of retailer AO World
Mike Ashley’s Frasers Group has invested £75m in electronic retailer AO World, taking a stake of almost 20 per cent in the business.
Both firms called the investment a ‘strategic partnership’ that would strengthen both sides of the deal.
It is the latest expansion of Ashley’s empire, now run by his son in law Michael Murray but with the founder of Sports Direct operating as chairman, after investments in Asos and Hugo Boss.
Frasers said last year in an update to markets that its strategic investments “offer new opportunities” to both the firm and the companies it is investing in, as well as “helping to support the long-term future of the existing retail businesses and the many thousands of jobs they sustain.”
Studio Retail and Missguided are also in the Frasers’ umbrella.
AO upgraded its guidance in its last market update, with revenues for the year to the end of March expected to sit at £1.13bn. The firm has around a third of the UK’s ‘MDA’ market – major domestic appliances.
The shift into white goods and electronics, away from clothes retail, marks something of a departure for Ashley’s Frasers Group and suggests the firm is keen to expand its retail offering into other segments.
Michael Murray, Frasers Group CEO, said the partnership would be mutually beneficial.
“Frasers has long admired what John and the AO team have built, and we are delighted to have the opportunity to form a supportive, strategic partnership. AO is a fantastic business with a clear strategy which is leading the market in online-only electricals,” he said this morning.
“Through this investment, Frasers will benefit from AO’s valuable know-how in electricals and two-man delivery, helping us to drive growth in our bulk equipment and homeware ranges. In turn, AO will have the opportunity to benefit from Frasers’ expertise and ecosystem.”
“Although the pair may initially appear to be an unlikely match, on closer inspection, there are potential synergies between the two retailers in terms of at-home appliances with Frasers’ sofa range complementing AO’s white goods offering,” Victoria Scholar, head of Investment, interactive investor said.
“Shares in AO World have struggled over the last year, trading flat over the past 12 months until Friday’s close, as the cost-of-living crisis prompts consumers to hold off from purchasing big-ticket items like fridges and washing machines.”
She added: “But given the recent recovery off last year’s lows for its shares, Frasers Group clearly judges that now is a good time to pounce in case the recent recovery continues, and shares become even dearer. The vote of confidence is providing a significant boost to shares in AO World this morning which are currently up by over 7 per cent.”
“Frasers is always one to spot a bargain and the big sell-off in AO’s share price – from above 400p in 2021 to sub-40p last summer – will not have gone unnoticed. It describes the investment as the foundation for forming a strategic partnership – while it is easy to speculate that Frasers will eventually acquire AO outright, it has form for taking equity stakes but not making full takeovers,” Russ Mould, investment director at AJ Bell said.
He added: “There is one odd thing about the deal, however. Logistics services are a commodity – it doesn’t need to spend £75 million on buying nearly a fifth of a business when it could talk to any number of delivery companies for help. Talk that Tuffnells is about to go into administration might even present an opportunity if it wanted to own a logistics firm.”