Way back in November of 2020 the Arcadia Group Limited entered administration after the Board announced the company owed £800 million to creditors. A large part of this was due to the pandemic, which no body saw coming and something they just couldn’t plan for. However, as one businesses closed its doors another saw a great opportunity. Online retail giant ASOS then went on to acquire the brand and stock of Topshop and Miss Selfridge for £330 million.
So, whilst one business went under, has another profited? We have taken a look back into that acquisition, and whilst we will probably have to wait a bit longer to see it the buyout has paid off, it does however seem like a good bit of business for Asos.
So as businesses still try and recover from the pandemic and with other issues on the horizon, will we will see more of this over the next few years?
Topics to be answered in this article
Why was it a good deal?
‘The Deal’ is a good example of how buyers selectively choose the assets they wish to purchase and discard those that they do not want – this is often known as asset stripping or ‘Asset Purchase’. On the flipside, sellers have the opportunity to maximise their return by selling off various assets at different times to different buyers at the best value possible.
So Asos didn’t acquire those businesses to keep them all running, they saw opportunities in each and thought if they were to purchase them, they could take a good bit and sell the rest off.
The Wider Market Meaning
Clearly ASOS deemed the value in the Arcadia Group to be one of an intangible nature, namely the Goodwill including the name and the brand. Often business owners do not appreciate the value that a third party may be prepared to pay to own the Goodwill. Businesses are notoriously difficult to value and a large part of the value of an established trading business such as the Arcadia Group, is the brand value and loyalty of its consumers – consumers are fickle and therefore any one day could change the value of goodwill quite dramatically.
Goodwill and brand loyalty can take start-up businesses years to build. It may therefore be obvious to see why businesses are willing to pay extortionate sums of money for the goodwill and brand name of an established reputable brand.
It could be viewed that the benefit of selling up in the form of an asset sale rather than a share sale, is that the market for buyers may potentially be much wider. ASOS did not purchase any of the premises associated with the Arcadia Group and perhaps if they were required to do so, no deal would have materialised or any value would have been massively reduced when the astronomical debt of Arcadia Group was factored in. By selling off assets at various stages, the seller is arguably in the position where they may be able to receive a higher value for the assets and maintain a level of control as and when assets are sold and to who.
Why now could be the right time to buy and sell businesses
Whilst many may consider the pandemic as having a catastrophic effect on business, varying business sectors and business owners have taken the opportunity of the pandemic to look at adapting and diversifying the running of their business, streamlining operational costs and functions but also reaping the rewards that the pandemic may have had within a particular sector. The pandemic may have encouraged long serving business owners to make the life changing decision to retire and put into place a succession planning and exit strategy.
Others have utilised the government funding schemes to leave an employed role and set up in business and the opportunity to purchase an established business can often be a quick win when someone is starting out.
There is never a perfect time to buy and sell a business but there is often a right time which is personal to everyone. The starting point is to ensure that the right and best advice from professionals is obtained before signing anything on the dotted line and handing over the cash.
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