THG is a tasty morsel
Business is going from bad to worse at the e-commerce group. Will it be taken over by a private-equity firm? Matthew Partridge reports
Online retailer THG – formerly known as The Hut Group – “has joined a string of mid-sized British companies at risk of being swallowed by private equity”, says Jasper Jolly in The Guardian. The shares have rocketed by 45% following a takeover approach from America’s Apollo Global Management – even though THG admitted that it was a “highly preliminary and non-binding indicative proposal”, and that there was “no guarantee a firm offer would be made”.
THG, which floated on the London Stock Exchange in late 2020, has seen its value slump by 90% from its initial public offering price. Given its disastrous performance to date, it’s not surprising that investors are rejoicing at the prospect of a private equity firm swooping in and putting everyone “out of their misery”, says Alistair Osborne in The Times. Still, investors shouldn’t get too excited. For one thing, THG hasn’t revealed many details about the indications of interest, which don’t seem to have come with anything
“as vulgar as a price attached”. And remember that this time last year, THG “lobbed in totally unprompted, other bid proposals, none of which went anywhere”. It’s also telling that the news came just before the company released its results.
THG would later surrender some of the gains from Monday’s news, falling by 18%, after it revealed a disappointing performance last year and a slow start to this one, says Katie Linsell on Bloomberg. Not only did adjusted earnings more than halve in 2022 compared with the prior year, but sales also turned negative in the first three months of the current year. THG now expects “low to mid single-digit revenue growth this year” compared with the “double-digit revenue uplifts” of previous years.
Eye-popping discount
Nonetheless, it’s not impossible that funds could be interested in THG, says Lex in the Financial Times. Its “straitened circumstances”, including “four profit warnings in the space of a year”, don’t detract from the fact that the group “trades at an eye-popping discount to the sum of its parts”. Broker Liberium believes that even if you apply an “undemanding” valuation of one times forward sales, THG’s “highly rated skincare brands and welltrodden online platforms” might alone be worth £1.4bn. Health brands such as Myprotein and Myvegan may be worth another £1.8bn. Add in another £500m for its e-commerce technology and the enterprise value would jump to £3.7bn, double Monday’s figure. There has certainly been a lot of privateequity interest in listed British companies lately, says Alex Brummer in the Daily Mail. Apollo is in the process of buying John Wood Group, too. There are also “plenty more bids on the table” from other firms, with Network International “close to accepting an offer by Francisco Partners and CVC”; events company Hyve has “agreed a deal with Providence Equity Partners, another US firm”. With 14 offers by private equity firm for UK companies, it very much looks like “Britain is being sold on the cheap”.