DFS founder to step down after £500m deal
Friday 23 April 2010
Lord Kirkham, the founder and chairman of the UK's biggest sofa retailer, DFS, is to step down after it was sold for about £500m to the private equity firm Advent International.
Graham Kirkham, who established DFS 41 years ago, will leave after handing over to Richard Baker, a partner at Advent and the former chief executive of Alliance Boots, who will assume the role of chairman.
The deal is the latest sign that private equity firms are ready to splash out again for retailers which have a proven record of profitability and growth potential. This year, Pets at Home, the pets accessories company, was sold to KKR for £955m and TA Associates bought Cath Kidston, the floral clothing chain, for about £100m.
The deal with Advent surprised the market because Lord Kirkham had apparently abandoned plans to sell the business just weeks ago. Although the 74-store strong chain had also attracted interest from the buyout firms Permira and Cinven, Lord Kirkham last month said: "I am categorically not interested in selling the business. I don't need the money. I am loaded."
But yesterday Lord Kirkham said that, following his comments at the end of March, Advent had approached him and won the day. He said: "It is an age-related thing. I like to feel I am immortal but it is not true." He added that there was no one in his family or the business who could take DFS forward and now was the time to sell.
It is believed that the sale will net Lord Kirkham – a former treasurer to the Conservative Party who was already one of South Yorkshire's richest men – a bumper payout of £300m. He floated DFS in 1993 before taking the business private again for £507m in 2004. Lord Kirkham has sold his shareholding in its entirety, although he is expected to retain a financial interest in DFS in the form of vendor loan notes.
Advent paid about £500m for the equity in DFS, which had debts of £315m at its last year-end. DFS has benefited from the disappearance of rivals including Ilva, Land of Leather and The Pier.
For the year to 1 August 2009, DFS's holding company saw its earnings before interest, tax, depreciation and amortisation jump by 42.1 per cent to £86.7m, before Lord Kirkham paid himself a £11.3m bonus.
Andy Dawson, a director at Advent International, said it planned to grow DFS through "new store rollout, online and brand development".
Corporate finance experts said that private equity firms are being far more selective about which retailers they seek to acquire. Marc Gillespie, a consumer and retail partner at Clearwater Corporate Finance, said: "Two to three years ago, many retailers could get private equity interested. But now private equity seems to be focusing on the category killer businesses that have a really strong positioning in the market or younger chains with fast growth potential."
He added: "Another difference is that private equity firms are now much more focused on the multi-channel capability of a physical retailer."
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