ASOS in £135m Topshop JV with Bestseller owner’s holding company

ASOS has big news on Thursday, delivering a trading update, a joint venture for Topshop and Topman, and details of new funding partly linked to the Topshop deal.

There’s been ongoing speculation about its continued ownership of the two star labels it previously acquired after the Arcadia collapse and it’s no surprise that its new partner for them is none other than Anders Holch Povlsen.

On Thursday ASOS said: “Following an initial unsolicited offer and a competitive sale process, it has today entered into a binding agreement with a subsidiary of Heartland A/S to form a new joint venture, which will purchase the Topshop and Topman (TSTM) brands”.

Heartland is an investment and holding company representing the interests of major ASOS shareholder the Holch Povlsen family, and their family business Bestseller. Heartland has a 28% indirect shareholding in ASOS.

Through a subsidiary, Heartland will hold a 75% interest in the JV at a cost of £135 million, “representing a total valuation of £180 million for the TSTM brands”. The remaining 25% will be held by ASOS Holdings Limited, which “will have the right, at its sole discretion”, to sell a further 5% interest to its JV partner for £9 million.

After transaction fees, and pro-rata payment to Nordstrom of its share of the consideration, this represents around a £118 million net cash consideration for ASOS, which will be used to strengthen its balance sheet.

ASOS was riding high when it bought the Topshop and Topman brands, as well as Miss Selfridge and HIIT, in early 2021. The company paid £265 million for the four brands, plus £30 million for the stock, and described it as a “strategically compelling opportunity to acquire strong, iconic fashion brands resonating with our core customer base”. 

But times have been tough since then and as mentioned, a sale of the valuable TSTM brands has long been rumoured.

The new JV “will grant ASOS certain design and distribution rights for the TSTM brands in return for a royalty fee to enable it to continue marketing and selling the TSTM brands online”. For FY25, the transaction is expected to have a £10 million-£20 million negative impact on EBITDA “and to be increasingly EBITDA accretive over time”.

The company said the deal aligns with its “renewed focus on allocating capital more efficiently, thereby accelerating [its] core Back to Fashion strategy”.

As part of the transaction, ASOS intends to relaunch Topshop.com within six months of completion and there’s an “opportunity to expand Topshop and Topman’s customer reach through selected wholesale partners — both online and offline”.

It would certainly be interesting to see Topshop back in physical stores.

Sales slip

Now for that trading update. ASOS said it “has made good progress on its Back to Fashion strategy, focused on bringing the best fashion and most inspirational experience to its twenty-something fashion-loving customers and delivering sustainable, profitable growth”. 

But while for FY24 it expects adjusted EBITDA at the top end of consensus estimates, sales will be “slightly below guidance”. The company gave no further details about that.

It did say key developments during H2 have been improving its speed to market. Test & React, which brings product from design to site in less than three weeks, has reached its target for around 10% own-brand sales by the end of FY24.

Partner Fulfils is also growing and using AI, personalisation and improved imagery, ASOS said it “has improved the customer experience and reduced total and underlying returns rate year-on-year”.

Cash boost

Finally, the refinancing. We’ve already seen the benefit the Topshop deal will bring to the balance sheet. But ASOS said it has also launched a refinancing that will include an offering of approximately £250 million of Convertible Bonds due in 2028 and a concurrent partial cash repurchase of the outstanding £500 million 0.75% Convertible Bonds due in 2026 issued by Cornwall (Jersey).

It has also amended and extended its existing facilities agreement with Bantry Bay Capital to May 2027 with an option for a 12-month extension.

Commenting on all of that, CEO José Antonio Ramos Calamonte said: “The joint venture and the launch of the refinancing will accelerate our strategy to both offer customers the best and most relevant product and to turn ASOS into a company that delivers sustainable, profitable growth.

“Topshop and Topman have made good progress since we acquired the brands. The new JV with Heartland is testament to the brands’ potential and the partnership will help bring Topshop and Topman to more customers globally. ASOS will continue to focus on what we do best — designing the best fashion and providing a destination for style.”