Retailer JD Sports is selling its Footasylum sports shoe chain to German investment group Aurelius, taking a hefty loss on a deal that was retrospectively blocked by the UK’s competition regulator.
Aurelius will pay £37.5mn for Footasylum, compared with the £90.1mn that JD spent buying it off the stock market in 2019. The deal ends a saga that involved two competition investigations, court cases, clandestine meetings and financial penalties and contributed to the ousting of JD Sports’ longstanding chair.
The cut-price sale comes despite a marked improvement in Footasylum’s performance. According to Aurelius, it is expected to generate revenue of around £287mn in its current financial year, “with an attractive ebitda margin”.
In its final year as a listed company, it reported sales of £194mn and adjusted earnings, before interest, tax, depreciation and amortisation, of £12.5mn.
JD acquired Footasylum in April 2019. The two companies were well known to each other: Footasylum’s backers, John Makin and David Wardle, were the original founders of JD Sports and its chief executive Barry Bown had 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 takeover was “the best strategic option for Footasylum and its employees” while then JD boss Peter Cowgill mentioned “significant operational and strategic benefits”.
But later that year, in September 2019, the UK Competition and Markets Authority concluded the deal would harm competition in the sportswear market and referred it for an in-depth investigation.
When that probe concluded in February 2020 with an order to divest the group, JD successfully overturned the verdict in the Competition Appeal Tribunal, arguing that the coronavirus pandemic had fundamentally changed the dynamics of sportswear retailing.
But a second investigation reached broadly the same conclusions as the first and the CMA again ordered JD to sell the subsidiary, a decision that infuriated Cowgill.
“I am not sure what further evidence the Competition and Markets Authority needs to appreciate the extent of this dynamic change which has been substantially accelerated by Covid-19,” he said at the time.
During the investigations and the subsequent sale process, Footasylum was to be run at arm’s length from JD Sports. But in the summer of 2021, Cowgill held 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. JD was fined £4.3mn as a result.
This was one of the several factors that led to Cowgill being ousted from his executive chair role in May, despite presiding over impressive growth in sales, profits and market value during his 18-year tenure at the company.
He has been replaced in a non-executive capacity by Andy Higginson, the former chair of supermarket group Wm Morrison, while an announcement regarding a permanent chief executive is due imminently.
JD shares were little changed at 130p in mid-morning trade. Analysts at UBS said they expected the resolution of the stand-off “to be taken positively” but noted that the group was still facing several other regulatory probes, including allegations of fixing the prices of some replica football kits.
Kath Smith, the interim chief executive of JD, said the company wished “both parties every success for the future”.
Dirk Markus, founding partner of Aurelius, said Footasylum “has the potential to become an innovative retailer of sportswear and we are eager to unlock the company’s full potential”.