As shoppers prepare for a black Friday spree, the bargain hunt for good value UK companies continues for private equity firms.
The rumour mills are now grinding around a possible bid by Apollo Global Management for UK high street staple Marks & Spencer, sending shares 3 per cent higher in early trade.
The New York-based private equity giant is reportedly mulling a buyout of M&S, as it considers the purchase a bargain and believes the joint venture between M&S and delivery company Ocado has been undervalued.
It comes after Apollo Global Management bought a 50 per cent stake in the joint delivery service in 2019 for £750m.
Apollo unsuccessfully bid for Asda, which was acquired last year by private equity firm TDR and the Issa brothers for £6.8bn. The US alternative investments business subsequently held talks over joining the consortium bidding for Morrisons and also mulled an offer for Sainsbury’s this year.
“It’s unlikely to be lingerie sales which have made M&S an attractive prospect, instead its food aisles and in particular the tie-up with Ocado which will be the allure,” commented Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown in London.
Streeter pointed out Apollo has flirted with other acquisitions in the UK grocery sector, losing out in its quest for Asda, and then pulling out after making advances for Morrisons.
“Given Apollo’s thwarted attempts so far, there is growing expectation that the group may make an offer for the company, particularly given that food was such a star performer in the last set of results.”Susannah Streeter of Hargreaves Lansdown in London.
Apollo will be weighing up the future value of Marks & Spencer’s e-commerce tie-up with Ocado, Streeter continued, and speculation that its success so far may lead the retailer to buy out Ocado’s 50 per cent share indicates the weight of expectation about its growth prospects.
However, shares have surged more than 27 per cent since those impressive results and if the price continues to climb, there is a chance Apollo may turn into more of a reluctant suitor.
“It does demonstrate how the UK is still near the top of private equity shopping lists, with valuations of UK listed companies dragged down while the economy continues to reverberate with problems caused by the pandemic and Brexit after-effects,” Streeter said.
M&S has struggled in recent years with shares down 22.42 per cent over a five year period. However, the company has experienced a resurgence during lockdown and remains an iconic brand on British high streets.
It is unclear whether a recent rally in M&S shares, which have risen 24 per cent since the company forecast this month that underlying profits would be close to £500m this year, will have dampened Apollo’s interest.
Apollo Global Management gave no comment on the rumoured takeover when approached by City A.M.