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USA. Lagardère Travel Retail has struck an agreement to acquire North American airport retailer Paradies, from Freeman Spogli & Co, the Paradies family and other shareholders. The price for the acquisition, payable in cash, is US$530 million (€485 million).
Combining the activities of Lagardère Travel Retail in North America and Paradies will create the second largest player in North America, said the Paris-based group. Sales at the new combined company will be close to US$800 million (€730 million) a year.
The agreement is for 100% of the equity of the Paradies holding company, representing about 80% of the activities in aggregate (in accordance with US regulations, Paradies activities are operated in each airport with dedicated legal entities including minority partners, representing around 20% of the enterprise value of the Paradies Group).
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“This acquisition transforms the presence of Lagardère Travel Retail in North America.Together, we will aim to create a regional leader and break new ground.“ |
Dag Rasmussen Chairman and CEO Lagardère Travel Retail |
The completion of the transaction is subject to a number of conditions, including regulatory approval and the agreement of several third parties. Gregg Paradies, President and CEO, will remain at the helm of the new company, facilitating its integration, noted the parties in a statement.
Dag Rasmussen, Chairman and CEO of Lagardère Travel Retail, said: “This acquisition transforms the presence of Lagardère Travel Retail in North America. It significantly strengthens our business and allows us to expand our concession portfolio and to develop relationships with our brand partners and suppliers. We are very pleased to welcome Gregg Paradies and all his employees to the group. Together, we will aim to create a regional leader and break new ground.”
Gregg Paradies, President and CEO of Paradies, added: “We at Paradies are very excited to join a company of Lagardère’s reputation and international experience. Paradies and the Lagardère group share many similarities including our strong family cultures. The combination of resources and experience will help accelerate our growth and competitiveness in this very dynamic industry.”
Family culture and regional presence
Lagardère Travel Retail noted Paradies’ “strong family culture” and its partnerships with a large number of US and Canadian airports, including the following: Atlanta, Los Angeles, Chicago, Dallas-Fort Worth, Denver, New York JFK, San Francisco, Charlotte, Las Vegas and Phoenix.
It said: “Through long-term concessions, Paradies currently operates in more than 76 airports. In recent years Paradies’ sales growth has largely outperformed passenger air traffic growth in the USA thanks to its recognised operational excellence, the increased diversification of its activities and the development of new concepts. This growth has also been driven by the development and continuous expansion of retail space in airports.”
In its fiscal year ended 28 June 2015, Paradies generated sales of US$515 million (€471 million).
In addition to sales synergies, significant cost synergy potential (purchase conditions, structure costs, etc.) will be generated from the first year of integration, said Lagardère Travel Retail. Recurring synergies could reach US$15 million a year as of the fourth year after the acquisition.
Market potential
Commenting further on Paradies and on the potential of the wider market, the French company said: “Having started out with a comprehensive range of convenience products and travel essentials, Paradies underwent major diversification into other segments including fashion, accessories and specialty products through a portfolio of strong and recognised brands. In addition, during the last few years, Paradies has expanded its activities into the food services segment, which represents another major driver of future growth.
“Its nationwide coverage is highly complementary with that of Lagardère Travel Retail, which has a stronger presence in Canada and a number of international US airports including New York-JFK and Los Angeles.”
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“We at Paradies are very excited to join a company of Lagardère’s reputation and international experience. The combination of resources and experience will help accelerate our growth and competitiveness in this very dynamic industry.“ |
Gregg Paradies President and CEO Paradies |
It added: “The airport travel retail market in North America (91% of it concentrated in the USA) is estimated to be US$7.7 billion (€7 billion). The market is characterised by a shifting competitive environment and a segmentation that differs from that of other continents. Its growth potential resides primarily in the expansion of the food services and speciality segments as well as in the modernisation of airport terminals, which expands the space available to retail shops, a key differentiating factor for airports.”
The company said that traffic growth, linked to economic growth, is projected to be approximately +3% per year between 2015 and 2021, and +2% during the decade thereafter. The North American travel retail market also has “favourable prospects in terms of increased sophistication and development, taking inspiration from European, Middle Eastern and Asian models,” it said.
Lagardère Travel Retail noted that the new company will carry “complementary” concepts (combining global brands with local and national concepts). The rollout of commercial and marketing synergies will “help seize numerous development opportunities in a dynamic and growing marketplace”.
Strategic interest
Lagardère Travel Retail said the acquisition will enable it to enter a new phase in its growth strategy by:
• acquiring a major presence in North America, “a highly resilient market” driven by traffic growth and the addition of new retail space in airports;
• creating a major player in the North American travel retail market, with a strong competitive position (combined presence in approximately 100 airports) in a market that remains relatively fragmented;
• seizing growth opportunities through the critical mass attained across all market segments and throughout all of the USA and Canada;
• strengthening its management teams in North America, notably with the arrival of Gregg Paradies who has led Paradies’ growth;
• bringing to North America the same “ambition for excellence” as in the other regions, particularly in Europe and the Asia Pacific region.
Transaction financing
The acquisition value amounts to US$530 million (€485m), which will be paid in cash by Lagardère Travel Retail via a bridge loan and then refinanced according to market conditions.
The additional debt would bring the Lagardère Group’s net debt to recurring EBITDA ratio to slightly below 3x at the end of 2016. The transaction is expected to be finalised during the fourth quarter of 2015.
