UK retailer WH Smith has unveiled plans to buy US airport chain InMotion in a £155m deal to double its travel business, as part of a strategic shift amid declining high street sales.
The books, stationery and convenience retailer said on Tuesday it had agreed to acquire InMotion, the largest airport-based digital accessories retailer in North America, from private equity firms Bruckmann, Rosser, Sherrill & Co and Palladin Consumer Retail Partners.
WH Smith said the deal marked a “significant step” in its international growth strategy, and would provide it a springboard from which to move into the US, the world’s largest travel retail market.
Stephen Clarke, chief executive, said that InMotion stores were similar to its techexpress offering in Europe, and that the acquisition would help it introduce the WH Smith brand to the US. “We intend to enter tenders for traditional airport retail. It gives us sufficient infrastructure in terms of head office and logistics, we can be serious contenders.”
Tenders are usually awarded by airport operators based on financial and service criteria. Rents are usually linked to turnover, rather than being fixed in advance.
Mr Clarke said there was no interest in moving into duty free travel retail, however. “That’s a very different market, it’s dominated by massive players. There has been a lot of consolidation.”
The transaction increases still further the group’s exposure to travel retail, which it defines as airports, train stations, motorway service areas and hospitals. The travel business has delivered more than 10 consecutive years of earnings growth and now generates two-thirds of the company’s operating profit.
It dilutes further the company’s high street operation. Earlier this month, WH Smith lost more than a tenth of its value after reporting substantial restructuring costs amid store closures following declining high street sales. In the first eight weeks of its new financial year, the group’s like-for-like high street revenue declined 2 per cent while travel revenue rose 4 per cent, it said on Tuesday.
However, Mr Clarke said it was still a valuable part of the company. “There is no denying we are becoming more travel focused, but we still make more profit on the high street than we did in 2013. It doesn’t have growth prospects but it generates lots of cash.”
InMotion’s like-for-like sales have risen 13 per cent in the calendar year to date, following like-for-like growth of 12 per cent in 2017. The group will operate as a standalone business within WH Smith’s travel division, and continue to be led by its existing management team.
A four-year term loan of £200m was provided to WH Smith to finance the acquisition, while an existing revolving credit facility of £140m has been extended for a further year, to December 2023. The purchase, which is pending regulatory approval in the US, is expected to complete before the end of the 2018 calendar year.
Analysts at Peel Hunt wrote in a note that “strategically this is a great deal”. They added that at “10 times earnings before interest, tax, depreciation and amortisation [the purchase] isn’t cheap at first glance but, given the growth and the scarcity of travel assets like InMotion, we have no problem with WH Smith paying up”.
Shares in the retailer closed 4.9 per cent higher at £18.19.
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