Shares of Doncaster-based DFS Furniture rose almost 5% after it said it agreed to buy Golborne-based sofa retailer Sofology Limited and announced an agreement to refinance its existing borrowings.
DFS said Sofology is being acquired for an initial enterprise value of £25 million and a “a potential further earn-out payment” and that “the total aggregate consideration payable is capped at £105 million.”
Sofology is a specialist sofa retailer with 37 stores in the UK and a strong web presence.
DFS said it identified “near-term potential synergy benefit of £4 million annually” from the deal.
It said Sofology reported revenue of £143 million for the 12 months ending December 31, 2016.
Sofology CEO Jason Tyldesley and his current management team will continue to lead the business.
“While the UK furniture retail market continues to be very challenging, we remain focused on making strategic progress to strengthen our position in living room furniture,” said Ian Filby, CEO of DFS Furniture.
“This acquisition represents a clear opportunity for DFS to accelerate our proven strategy of broadening our appeal, generating substantial long-term returns for shareholders underpinned by well-understood synergies.
“Sofology’s distinctive market position is a good fit with our existing brands.”
On its refinancing, DFS said it will convert its current facilities to a new lower-cost five-year £230 million revolving credit facility structure.
“The new facility, maturing in July 2022, has been arranged with a group of six banks,” said DFS.
“The financial covenants remain unchanged from DFS’s current £200 million term loan and £30 million revolving credit facilities that were otherwise due to mature in March 2020.
“The new facility will lower the cost of the group’s debt financing from the financial year starting on 30 July 2017 by approximately £1 million per year.
“An additional £100 million uncommitted accordion feature also provides further potential headroom for any currently unforeseen future funding needs.
“Unamortised issue costs in respect of the group’s current facilities amounting to £1.4 million will be written off following this refinancing as part of the group’s finance charges and will be treated as an exceptional item in the financial year ending 28 July 2018.”