Why the sale of 160-store Rivers retail chain for just $5m is bad news for anyone trying to sell a business
December 2, 2013 Leave a comment
James Thomson Editor
Why the sale of Rivers for just $5m is bad news for anyone trying to sell a business
Published 29 November 2013 08:36, Updated 29 November 2013 08:40
It sold for how much? That was the question flying around the Melbourne office of BRW yesterday after it was revealed that the owner of the 160-store Rivers retail chain had sold to ASX company Speciality Fashion Group for a paltry $5 million. What makes the deal even more surprising is that the business has revenue of $180 million a year, and underlying earnings of 5 per cent of revenue according to Speciality Fashion – around $9 million.SFG’s chief executive Gary Perlstein described Rivers former owner Philip Goodman as a “motivated seller” which must be some sort of understatement. On the surface, it makes absolutely no sense that anyone would sell for a percentage, rather than a multiple, of their annual profit.
But there could be a few more forces at play here.
Firstly, this is retail, and more specifically fashion. Even more specifically than that, it’s the cheap end of the fashion sector, where discounting is a way of life (as anyone who has seen Rivers’ el cheapo advertisements can attest) and margins are constantly under pressure.
Regardless of Goodman’s level of motivation, this surely must suggest that asset prices in retail are under as much pressure as margins are. A strong store footprint, good brand recognition and profitable operation aren’t even enough to let you sell on a good multiple.
Secondly, I wonder if Goodman’s poor price could be a signal that entrepreneurs hoping to exit are going to find things very, very tough.
For years we’ve been talking about a wave of business sales as a group of baby-boomer business owners try to turn their companies into a fat retirement cheque. The GFC delayed the wave, but anecdotally at least business advisers suggest improving market conditions have seen the would-be sellers start to stir.
A few weeks ago, Booktopia’s Tony Nash told BRW that he has had a number of entrepreneurs coming to him to investigate if Booktopia can buy them out.
While he is not really in the market for acquisitions, he said many of these business owners were likely to be disappointed
“They are looking for the payout they can possibly get,” Nash says. “I think a lot of them are going to end up saying ‘no buyer, we’re going to have to wind up’. Because they are never going to get the value they thought they would.”
Might Philip Goodman have been in this boat? Might other entrepreneurs face the same fate? These are interesting questions.
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