June 26, 2017 / 6:33 AM / in 5 months

Fridman's L1 Retail to buy Holland & Barrett for $2.3 billion

LONDON (Reuters) - Russian billionaire Mikhail Fridman’s L1 Retail has agreed to buy Britain’s Holland & Barrett for 1.77 billion pounds ($2.26 billion) in its first acquisition, betting on continued growth and expansion abroad for the health foods chain.

L1 Retail, part of Fridman’s empire that spans investments in ride-hailing firm Uber to North Sea assets, said it expected to complete the purchase from The Nature’s Bounty Co. and The Carlyle Group by September, subject to regulatory approvals.

Britain’s retailers face an uncertain future, with consumer spending slowing and online competition picking up. Luxury clothing chain Jaeger fell into administration in April, while dealmaking has also been on the rise, with Brazil’s Natura set to buy The Body Shop from L‘Oreal.

However, some industry experts think healthier foods could prove a resilient part of the market, with online giant Amazon.com (AMZN.O) agreeing to buy U.S. chain Whole Foods for $13.7 billion earlier this month.

Researchers Euromonitor reckon the health and wellness market grew 4.8 percent a year between 2011 and 2016, reaching a total value of $704 billion last year.

Holland & Barrett, whose products range from vitamins and homeopathic remedies to “free from” foods for allergy sufferers, says it has grown same-store sales for 32 consecutive quarters, with revenues topping 610 million pounds in 2016.

While focused mainly in Britain, the 1,000-plus store chain has been expanding abroad as well as online, helping to catch L1 Retail’s eye.

“We believe that the company is well positioned to benefit from structural growth in the ... health and wellness market and has multiple levers for long term growth and value creation,” said L1 Retail managing partner Stephen DuCharme.

Holland & Barrett was founded in 1870, but traces its roots in health and wellness back to 1920 when Samuel Ryder - who went on to sponsor the international golf tournament that bears his name - set up a company specializing in herbs.

‘PUSH BACK’

Jonathan Buxton, partner and head of retail at Cavendish Corporate Finance, said the takeover by L1 Retail could help Holland & Barrett fend off growing competition.

“With this kind of investment, we would expect that the retailer will continue to invest in its stores but more importantly, seek to increase its online presence to push back against the likes of Amazon following its acquisition of Whole Foods,” he said.

According to Forbes, Fridman reached the seventh spot in Russia’s 2017 rich list, with wealth of $14.4 billion.

Though he has moved his base to London from Moscow, the 53-year-old and his partners still own major assets in several industries in Russia, including a majority stake in Russia’s biggest food retailer by sales X5 Retail, top-10 lender Alfa Bank and Russia’s third-biggest mobile operator Vimpelcom.

However, since selling out of oil company TNK-BP to Russia’s state-owned energy group Rosneft (ROSN.MM) in 2013, they have largely sought to invest outside Russia.

L1 Retail’s advisers include Karl-Heinz Holland, former CEO of German discount retailer Lidl Group, and Clive Humby, a founder of retail data pioneer dunnhumby.

A spokesman for L1 told Reuters the company would create a board for Holland & Barrett that would include L1 Retail’s advisory board and investment team, possibly some outside non-executive directors and the chief executive and chief financial officer of the chain.

Private equity firm Carlyle acquired Nature’s Bounty, including Holland & Barrett, in 2010 for $3.8 billion.

Reuters reported in January that Carlyle had hired Goldman Sachs to help it sell Nature’s Bounty, but that it might opt to sell Holland & Barrett separately.

Carlyle was advised by Goldman Sachs, Houlihan Lokey, UBS, PwC, Latham Watkins and OC&C.

Additional reporting by Maria Kiselyova in Moscow; Editing by Simon Jessop and Mark Potter

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