French Connection, the struggling British high street chain, is being circled by a number of overseas retail investors amid speculation that founder Stephen Marks may be willing to consider a sale.
According to The Sunday Telegraph Marks may be open to selling the business which has struggled in recent years to keep up with high street rivals such as Ted Baker at the higher end of the market and fast fashion experts such as Zara.
It has been taking advice from independent investment bank Moelis after receiving a number of approaches to buy the business. Among those believed to be interested is US firm Neuberger Berman, which recently acquired Marquee Brands, owner of Ben Sherman and Bruno Magli.
Others interested are European and US private equity business. British private equity firm Rutland Partners had previously run the rule over French Connection earlier this year when its share price stood at around 40p. A source at the time was quoted as saying that any deal over 40p per share would be difficult to justify given the recent performance of the business.
Last month the business posted a pre-tax loss of £7.9m in the six months to 31 July (a flat figure year-on-year) on sales down from £75.8m to £69.2m. It has been in loss for five consecutive years.
The approaches come following pressure from activist shareholder Gatemore Capital Management which has built up an 8% stake in the business and has been trying to exert pressure on Marks, who still owns a 41% stake in the business he founded in 1972, to sell it.
Gatemore has also been putting pressure on Marks to split his role of chairman and chief executive, which contravenes corporate governance guidelines, and to remove two non-executive directors Dean Murray (former CEO of Myriad Childrenswear Group) and Claire Kent (a former managing director of Morgan Stanley) who have been serving for nine years. Gatemore argues the pair can no longer be considered independent having served for so long.
It has also questioned Marks’ strategy given the poor financial results, saying he should ditch the FCUK brand, appeal to a more sophisticated client base, leverage the main brand’s licensing potential and do more to close under-performing stores. Marks, however, has been intransigent, until now, when it comes to selling the business but he has refreshed his non-executive team with the appointment of former Abercrombie & Fitch president and Next product director Christos Angelides, who is a highly respected figure. Lee Williams has also joined as finance director from young fashion etail business ASOS.
Marks also pointed out, when the business posted its interim results last month, that it had achieved a 6.5% uptick in like-for-like retail revenue (though underlying sales were down 2.5% and wholesale performed badly) saying there was now momentum behind its recovery. “There is still much work to do in the rest of the year to move the business forward significantly,” Marks said. “We believe the team we have in place and momentum we are seeing will help us to achieve this.”
It is believed that Gatemore arranged a meeting with French Connection’s management team last month following the announcement of the numbers, but Marks had failed to turn up.
Gatemore has said that should the business be able to break event and achieve margins in the region of “sector norms” a share price of 150p per share should be achievable. Last week its shares closed at 32.9p, valuing the business at around £32m, and sources quoted by The Sunday Telegraph have said that the business is currently undervalued and Marks would only be interested in a deal at three times that amount.
