“Very strange bedfellows”: The logic behind Waterstones’ sale to Elliott
Waterstones' boss is relishing the “extra energy” and “certain vigour” brought about by todays curious sale to US hedge fund goliath Elliott Advisors.
Elliott, best known for buying stakes in some of the worlds biggest companies and agitating for change, today snapped up the UK high street darling from Lynwood Investments.
The Paul Singer founded fund manager, which has $35bn (£25bn) of assets under management, has recently hit the headlines by successfully demanding coffee chain Costa is spun off from FTSE 100 giant Whitbread.
“Google tells me that the activist side of Elliott would indeed be a very strange bedfellow for Waterstones,” James Daunt, the chief executive of Waterstones told City A.M..
“But if they are building up a private equity interest, then we are not. We are an interesting company with a very strong position in our own little niche.”
Daunt said as part of the bidding process, Elliotts private equity team “didnt seem hugely different to the other private equity guys”.
The new owners will bring new ideas and a bit of extra energy to the place. But I dont think the core strategy will change because it proved to be quite successful.
Read more: Waterstones owner Mamut drafts in Rothschild to start next chapter
"Discomfort"
Having endured a tumultuous time between 2009 and 2014, Waterstones returned to profitability in 2016. The firms most recent full-year sales, to April 2017, were £404m. With the loss-making years shelved, Waterstones is embarking on a bookshop expansion programme. It opened eight stores last year and was launched three new outlets in 2018 already.
“One doesnt welcome in any way discomfort on the high street. But nonetheless if you are doing well and you are growing, then the sudden greater availability of sites – the loosening of the property market – is certainly very helpful,” said Daunt.
“There are retailers who are simply retail a product and online is able to cannibalise their sales effectively. That has in the past been true for books… but over the last few years we have changed and become a place where people come to and we are a social place. The sort of a retailer, where people come for the pleasure of being in the shop are immune to online and therefore do very well.”
Daunt, who was appointed as Waterstones boss in 2011 as annual losses hit £32m, cut his teeth in the bookshop market by launching his own chain in 1990 – Daunt Books remains independent of Waterstones and has nine stores.
He admits once the Elliott deal is completed – the current expectation is this will be in May – things could change.
Once they get the keys, they will do what they want. They own the business. But my assumption is we are to carry on and they want us to keep making the business more profitable and keep on growing it. Weve been opening up quite a lot of shops; a bit more capital will allow us to do that quicker.
Nevertheless, Daunt remains confident Elliotts European private equity head Paul Best has no designs on sweeping changes. After all, he said: “Bookshops are rather nice places to be.”
Read more: Costa spin-off could lead to £3bn Whitbread windfall – and cost just £20m
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