Following the news that JD Sports is to buy Footasylum for £90m, Patrick O’Brien, UK Retail Research Director offers his view:
“While JD Sports is paying a 77% premium on Friday’s closing price, the 82.5p bid is almost half of Footasylum’s IPO offer price when it listed just 16 months ago.
“Footasylum went for rapid growth but the wheels started to come off in May last year as a highly promotional market forced its margins down and choked the supply of cash needed to build out its store network. The resulting profit warnings and dialling down of capital investment plans devastated its market capitalisation.
“For JD Sports, this looks like a defensive move against Mike Ashley’s Sports Direct. With Footasylum’s share price so low, it looked like only a matter of time before the hoover of the high street would strike, before JD Sports began building its stake last month. But the deal seems a positive one for JD Sports, which has the clout to restart Footasylum’s expansion and use its sourcing scale to make it more efficient and we expect it to develop what is still a very marketable fascia.”