Further strengthening an already formidably strong balance sheet, the fresh funds will be used for fashion brand acquisitions in a retail sector left reeling by the COVID-19 pandemic.
FASHIONING FURTHER M&A
The Manchester-headquartered online fashion group already had £240.7m of net cash nestling in the coffers as of its 29 February year end and has continued to generate cash since, despite the difficulties engendered by the coronavirus pandemic and associated lockdowns.
Nevertheless, Boohoo has taken the opportunity of a high share price to rake in a further £197.7m through a private placing - equivalent to 5% of the company - with a limited number of institutional and other investors.
This is in order to ‘take advantage of numerous opportunities that are likely to emerge in the global fashion industry over the coming months’. Management ‘continues to review a number of possible M&A opportunities’ and will update shareholders ‘as required’.
Signalling the scope of its ambitions, Boohoo insists it now has an even stronger balance sheet ‘to help accelerate its vision to lead the fashion e-commerce market globally’.
The group behind the eponymous Boohoo brand as well as the PrettyLittleThing label has already demonstrated its ability to successfully integrate fashion brands, having acquired the Karen Millen and Coast brands last summer and transitioned these to an online proposition using its scalable multi-brand platform.
These acquisitions followed those of both NastyGal and Miss Pap in recent years.
At the full year results last month (22 April), Boohoo noted that since the mid-March trading had been mixed as a result of the impact of the pandemic, initially seeing a marked decrease in the year-on-year growth rate.
Performance then picked up during April, and the new news is that ‘trading into May remains robust’. That said, management remain cautious regarding the outlook due to the uncertainty caused by the COVID-19 pandemic ‘together with the impact of lifting lock-down restrictions and the potential influence on competitive behaviour for the remainder of the year.’
Given the uncertainty generated by the continually evolving COVID-19 pandemic, it is not providing guidance for the financial year ending 28 February 2021 at this stage.
THE ANALYSTS’ TAKE
‘This looks to be a front-footed action, given the potential for numerous M&A opportunities to arise from the current environment,’ explained Numis Securities, which sees Boohoo as ‘exceptionally well placed’ for the current environment and beyond.
‘Given the positive commentary around the integration of Karen Millen/Coast we expect that would continue to be the template for future M&A,’ said the broker.
Shore Capital added: ‘With a bolstered balance sheet, following this capital fundraising and a cash generative business, this leaves the group in a strong position to weather the current storm but also come out with a stronger and perhaps enlarged business in the months ahead.’
However, the broker also cautioned: ‘It remains to be seen how its core focus on millennial customers will play out with many economic uncertainties, particularly around employment and consumer confidence in the UK and wider world, which may sharply impact consumer spending patterns.’