23rd May 2022 14:30
(Alliance News) - Moonpig Group PLC's latest acquisition has a storied history, stacked with setbacks, though investors will be hoping the newly bought business is not a poisoned chalice.
The greetings card seller on Monday announced the GBP124 million cash purchase of Smartbox Group UK Ltd, which trades as Buyagift. It is a provider of physical and experiential gifts, operating the Buyagift and Red Letter Days brands.
Although a self-confessed "step-change" from Moonpig's current offering, the market saw the rationale.
Moonpig shares were 9.5% higher at 257.20 pence each in London on Monday afternoon, among the best mid-cap performers.
The UK gift experiences market is worth GBP6 billion, Moonpig said, as it eyes becoming the "ultimate gifting companion".
AJ Bell analyst Russ Mould commented: "Moonpig's long-term growth plan is focused on selling gifts alongside greetings cards. It can make a lot more money bundling a teddy bear, box of chocolates and flowers with a birthday card than simply selling the latter on its own. It's therefore logical to see it acquire to increase its presence in the gifting market and branch out into more expensive experiences.
The Red Letter Days brand was founded by Rachel Elnaugh. She was a panellist on BBC show Dragons' Den, which gives budding entrepreneurs the platform to pitch their companies or ideas to potential investors.
Red Letter Days fell into administration in 2005. It was bought by Peter Jones and Theo Paphitis, two of Elnaugh's Dragons' Den stable mates, before being sold to the current owners.
AJ Bell's Mould added: "Moonpig is paying just under nine times earnings before interest, tax, depreciation and amortisation to acquire Buyagift which is not a bargain, but equally not excessive. Given Red Letter Days' tarnished history, Moonpig shareholders will be hoping this is not a cursed business and one which the new owner will regret buying."
A red letter day is one of significance, the term getting its name from the idea that significant dates on calendars are marked in red ink.
Analysts at broker Davy believe shareholders will look back at Moonpig's acquisition as a significant one.
"Moonpig's acquisition of Buyagift progresses both growth and competitive advantage and seems like a good deal at reasonable terms. Perhaps, one hopes, the first of a number of such deals," Davy said.
It is a deal which "makes a lot of sense", Davy said, given the efficiency of experiential gifting and the cross-selling opportunity with Moonpig's existing offering.
"[One] could quibble about the 100% cash dynamic, but Buyagift is a fine business," Davy added.
By Eric Cunha; [email protected]
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