* Brait’s second major deal in a month
* Enters fiercely competitive UK fashion retail market
* Deal diverts potential stock market listing
* Shares rise more than 3 percent (Adds private equity returns, shareholder comment)
By Tiisetso Motsoeneng
JOHANNESBURG, May 15 (Reuters) - African investment heavyweight Brait SE will pay $1.2 billion for virtually all of budget clothes retailer New Look, giving it a substantial presence in Britain’s fiercely competitive fashion retail market.
The deal, announced on Friday, puts Brait, whose top shareholder is South African retail mogul Christo Wiese, in the middle of the crowded British high street, where New Look vies with Primark, part of AB Foods, Next and H&M.
New Look, owned by private equity groups Apax and Permira, as well as founder Tom Singh, has 600 stores in the UK and Ireland and trades from a further 200 across Europe, North Africa, the Middle East and Asia including China where it wants to expand.
It is the second big deal in a month for Brait, one of Africa’s largest investment houses which is also buying fitness chain Virgin Active.
Brait will take a 90 percent equity stake in New Look for 780 million pounds ($1.23 billion), giving the retailer an enterprise value of 1.9 billion pounds, which includes 1 billion pounds in debt. The remaining stake will stay in the hands of the founding family and management.
Brait shareholder Momentum Asset Management, which has more than 1.6 billion rand funds under its custody, said it was a strategic move into the British market that should be less risky than some African ones.
“It’s a lot of money Brait is paying and the UK market is highly competitive,” Wayne McCurrie, fund manager at Momentum, which, according to Thomson Reuters data, owns a stake worth just under $10 million.
“But on the bright side it is not as risky as Nigeria, for example, and over time to diversify is actually a logical strategic move.”
New Look had been eyeing a stock market listing when Brait swooped, with chief executive Anders Kristiansen telling reporters in February that the retailer was ready for floatation.
However, Nick Bubb, an independent retail analyst in London, said an IPO may not have made sense for New Look, which has ambitions to grow in China, the world’s most populous country.
“An IPO never looked a runner given New Look’s very chequered UK history and the unproven Chinese potential,” Bubb said.
“Whether New Look’s recent revival can be sustained is another matter, given the surplus capacity in the UK fast fashion market.”
New Look, which also operates in France, Poland and Belgium, pulled a planned stock market listing in 2010 amid turbulent financial markets.
Shares in Brait, which is also listed in Luxembourg , jumped more than 3 percent before giving up some of the gains to trade 2.12 percent higher at 92.83 rand - valuing it at $4 billion.
“New Look is an attractive investment opportunity for Brait,” said John Gnodde, Brait’s chief executive and former Goldman Sachs banker, adding that the company had the potential to “grow rapidly” in several other markets that include China.
Brait raised 8.6 billion rand ($730 million) in 2011 - at the time South Africa’s largest ever capital raising - by issuing more publicly owned shares and ditching the private equity business model.
But it has stuck with its strategy of investing in private companies, including British supermarket chain Iceland Foods and South Africa’s Premier Foods, the biggest maker of local staples such as maize meal and bread.
Last month, it announced a $1 billion deal to buy Virgin Active, using some of the 26 billion rand it made from selling its stake in Pepkor, Africa’s biggest budget clothes retailer, in a deal that intercepted a planned initial public offering.
Apax made a return of 4.4 times its original investment, and Permira made 4.3 times, two sources familiar with the matter said.
The business received offers from other trade buyers, including Asian bidders, but Brait’s offer was the highest and more than the company was expected to fetch in an IPO, one of the sources added.
Permira said the deal valued its stake in New Look at 37 million pounds, nearly 70 percent more than the January valuation of 22 million pounds.
New Look was advised by Goldman Sachs International, JP Morgan Cazenove, Clifford Chance and Price Waterhouse Cooper while Rand Merchant Bank, a unit for FirstRand, and Nomura International advised Brait. Altium advised New Look founder Singh.
The transaction is expected to complete at the end of June. ($1 = 0.6344 pounds) ($1 = 11.8195 rand) (Additional reporting by Olivia Kumwenda-Mtambo in JOHANNESBURG, James Davey and Freya Berry LONDON; Editing by David Goodman and Anna Willard)