Retailer JD Sports is selling its Footasylum sports shoe chain to German investment group Aurelius, taking heavy losses over a deal that was retroactively blocked by the UK’s competition regulator.
Aurelius will pay £37.5mn for Futsilum, compared to £90.1mn that JD spent buying it from the stock market in 2019. The deal ends a saga that involved and contributed to two competition investigations, court cases, secret meetings, financial penalties. The removal of the long-standing chair of JD Sports.
The cut-price sales come despite Footasylum’s marked improvement in performance. According to Aurelius, it expects to generate revenue of around £287 million in the current fiscal year “with attractive EBITDA margins”.
In its final year as a listed company, it reported sales of £194mn and adjusted earnings before interest, taxes, depreciation and amortization of £12.5mn.
JD acquired Footasylum in April 2019. The two companies knew each other well: Footasylum’s supporters, John Makin and David Wardle, were the original founders of JD Sports, and its chief executive, Barry Bown, previously held the same role at JD.
However, Footasylum had run into financial difficulty and warned on profits several times in its final months as a listed company. Bown said at the time that the JD acquisition was “the best strategic option for Futsilum and its employees”, while then-JD boss Peter Cowgill noted “significant operational and strategic benefits”.
But later that year, in September 2019, the UK Competition and Markets Authority concluded that the deal would harm competition in the sportswear market, and referred it for a thorough investigation.
When that investigation ended in February 2020 with an order to split the group, JD successfully overturned the decision in the Competition Appeals Tribunal, arguing that the pandemic had fundamentally changed the dynamics of sports retail sales. .
But a second investigation reached roughly the same conclusions as the first, and the CMA again ordered JD to sell the subsidiary, a decision that angered Cowgill.
“I am not sure what further evidence the Competition and Markets Authority needs to appreciate the extent of this dynamic change that has been greatly accelerated by COVID-19,” he said at the time.
During the investigation and subsequent sales process, Futsilm was to be run at arm’s length from JD Sports. But in the summer of 2021, Cowgill had two meetings with Bown and video footage of one of them – which took place in a car park in Bury – was leaked to the Sunday Times. As a result JD was fined £4.3mn.
Despite presiding over impressive growth in sales, profits and market value during his 18-year tenure at the company, it was one of several factors that led to Cowgill’s ouster from his acting chairman role in May.
He has been replaced in a non-executive capacity by Andy Higginson, former chairman of supermarket conglomerate WM Morrison, while an announcement about a permanent chief executive is imminent.
JD shares were little changed at 130p in morning trade. Analysts at UBS said they expect the resolution to the impasse will be “taken positively” but noted that the group still faces several other regulatory investigations, including allegations of price fixing of some replica football kits. Are included.
JD’s interim chief executive Cath Smith said the company wishes “every success for the future” on both sides.
Dirk Marcus, founding partner of Aurelius, said that Futsilum “has the potential to become an innovative retailer of sportswear and we look forward to unlocking the full potential of the company”.