It’s been a difficult 12-months for Asos as the ex-City darling battled with supply chain woes and higher trading costs along with dampened consumer spending.
Last week, the online fashion giant, which was valued at more than £7bn just over two years ago, was relegated from the FTSE 250 index causing its shares to hit a 12-month low, leaving it at a value of £400m.
Over the weekend, it emerged that the retailer was approached by Alibaba-backed Turkish fashion retailer Trendyol back in December with a £1bn takeover bid.
Although it appears this approach was rebuffed, the slump in Asos’ share price could make the retailer a bargain purchase right now.
The fact that Mike Ashley’s Frasers Group upped its stake in the online retailer to 8.8% and again to 9.9% this week will add further fuel to the fire that Asos could soon be snapped up.
Is Asos vulnerable to a takeover?
With its share price significantly lower than in previous years, there is no doubt that potential suitors will be sniffing around the online fashion giant.
Asos has three big shareholders: Bestseller owner Anders Holch Povlsen, who holds a 26% stake, hedge fund Camelot Capital Partners, which who has 15%, and Frasers Group with 9.9%, making up 50% of the shares.
Peel Hunt analyst John Stevenson says: “Any any kind of bid would have to have them on board and I’m not convinced they would be.”
But could one of these three make a move to buy the retailer?
Stevenson points out that Povlsen has been a long term shareholder at Asos and has had “ample opportunity to take it private in the past”.
But what about the other two shareholders?
It’s no secret that Mike Ashley loves a bargain, with the retail group famed for snapping up businesses in trouble. The group has also been focused on building an online portfolio of late, acquiring Studio, Missguided and ISawItFirst.com.
However, Stevenson is unconvinced Frasers will make a move for the business.
He points out that as the smallest of the big three Asos investors, the retail group is “not in the driving seat”, adding that it would “have to work with Camelot and Bestseller and I’m not sure necessarily anything’s going to happen in the short term”.
How interested would investors be in Asos?
Despite Asos’ current woes, Stevenson can see why it would be attractive to investors.
He calls Asos “a significant UK platform that’s massively relevant in the UK and fashion market”.
“It’s the sort of crown jewel, it also has the Topshop IP as well.”
Retail Economics senior consultant Nick Found adds that although Asos may be confident of its future growth, “investor sentiment in the retailer remains fragile and the business remains a target for takeover”.
“Balance sheet aside, you can see why,” he explains.
“Fundamentally Asos has high value digital assets – whether that’s search engine optimisation, its reach on social media, or its 26 million customer base online.”
However, like Stevenson, he points out that “any bid would not be straight forward however, as interested parties would have to convince Asos’s largest shareholders”.
Right now, with Asos’ shares languishing, some of those shareholders will be out of pocket.
Last month, the online giant posted first-half losses of £290.9 million, compared to a £15.8m loss the year before.
The retailer has also had its credit insurance cut, with Allianz Trade withdrawing insurance altogether, which has led to some suppliers severing ties with the firm.
Corporate finance professional Claire Trachet adds that while Asos has “made its mark as a top contender in the online retailing space” when companies experience challenges like it is “it makes it more likely that a takeover could take place”.
“There are dealmakers in the market currently that are sat on a dry powder pile having paused investments in 2022. They will be looking to take advantage of any companies that are potentially undervalued but have a lot of potential to rebound quickly.”
Globaldata senior apparel analyst Pippa Stephens believes a takeover could be a good thing for the retailer.
“If Asos were to be taken over, it will put it in a better position to achieve its desperately needed turnaround, as its future is currently looking bleak with constant currency revenue excluding Russia expected to decline by low double-digits in H2.”
“A new owner would need to focus on widening Asos’ appeal again through featuring more versatile and sophisticated styles within its ranges and ensuring it can better compete with competitors like Shein and Boohoo.com in regard to price.”
This turnaround is critical to Asos.
Found says the retailer needs to adapt to the evolving fashion landscape.
With a young core consumer base, which he calls a “particularly fast-moving part of the market,” the business is sensitive to new waves of changing shopper behaviour and new entrants.
“It will need to remain at the sharp end of digital development, adapt to cross-channel behaviours and answer to sustainability pressures to remain relevant,” says Found.
There is certainly pressure for new Asos boss José Antonio Ramos Calamonte’s 12-month plan to work quickly.
The retailer last month was forced to raise £80m from shareholders and borrowing £275m through an asset-based loan from Elliott-backed distressed lender Bantry Bay to shore up its balance sheet.
The refinancing is understood to have angered Frasers Group, which had its help offer snubbed in favour of the interest-laden loan, set to cost Asos £45m in the second half of the year alone.
However, Stevenson says the business “should have quite a significant level of headroom” and a “decent level of cash” which will enable it to trade through this challenging period and recover.
He adds that the next six months are all about getting costs down and trading profitably.
“It’s got a base to build from, but first thing they’ve got to do is right the ship and stabilise things,” Stevenson says.
That will be Calamonte’s focus as he captains Asos through these tricky waters, whether or not a new owner attempts to come aboard.
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