8th Mar 2024 09:30
(Alliance News) - Frasers Group PLC's decision to place Matches into administration raises questions over due diligence procedures but was not a significant blow, analysts said Friday.
Shares in Frasers fell 1.0% to 798.00 pence on London on Friday.
The Shirebrook, England-based owner of the Sports Direct, Frasers and Flannels retail brands purchased London-based Matches, from private equity firm Apax Partners LLP, in December for approximately GBP52 million.
Matches had reported an adjusted loss before interest, tax, depreciation and amortisation of GBP33.5 million for its financial year that ended on January 31, 2023. Regardless, Frasers Chief Executive Officer Michael Murray said he was "confident that, by leveraging our industry-leading ecosystem, we will unlock synergies and drive profitable growth".
On Friday, however, Frasers said that Matches' directors have decided to put the business into administration.
Frasers explained that since the acquisition, and despite its support, Matches "has consistently missed its business plan targets and...has continued to make material losses".
The firm continued: "Whilst Matches' management team has tried to try to find a way to stabilise the business, it has become clear that too much change would be required to restructure it, and the continued funding requirements would be far in excess of amounts that [Frasers] considers to be viable."
Liberum analyst Adam Tomlinson said the news is "clearly disappointing".
"While a relatively quick decision on the acquisition will have been made, it is clear any due diligence was not enough to give sufficient visibility on the health of Matches and the ability to turn it around," he commented.
Although Frasers will likely be one of the senior creditors, and there will be some stock and possibly some intellectual property value, Frasers still stands to make probably a "low tens of GBP million loss from the failed acquisition".
Tomlinson said this was "disappointing, albeit not material".
On the bright side, Tomlinson noted that Frasers' track record in Mergers & Acquisitions has seen far more wins than losses. He added that Friday's news, while negative, does not change his 'buy' rating.
Liberum's target price for Frasers likewise remains unchanged, at 1,000p. This represents a 25% premium to its current share price.
By Jeremy Cutler, Alliance News reporter
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