In August 2004, Gresham Private Equity led the NZ$138.5m by rub18840


									                                                     Noel Leeming Group
                                                       IN VESTMENT R EPORT NO. 1

In August 2004, Gresham Private Equity led the
NZ$138.5m management buyout of Noel Leeming
Group Limited from Pacific Retail Group.

SUMMARY OF DEAL                                                         THE BUSINESS
In August 2004, Gresham Private Equity led the NZ$138.5m                Noel Leeming is the largest electrical appliance retailer in New
management buyout of Noel Leeming Group Limited from Pacific             Zealand with a market share of 26%. It has 90 retail outlets
Retail Group. Noel Leeming Group is New Zealand’s largest               comprising 4 brands, Noel Leeming, Noel Leeming Furniture,
electrical appliance retailer operating under the ‘Noel Leeming’,       Bond & Bond and Big Byte.
‘Noel Leeming Furniture’, ‘Bond & Bond’ and ‘Big Byte’ brands.

The buyout was led by Gresham Private Equity and Direct Capital
                                                                        Noel Leeming
                                                                        Noel Leeming is the flagship retail brand with 47 stores and
also invested in the transaction. The management team has made
                                                                        over 630 employees. It strives to offer a superior standard of
a significant investment. Bank of Scotland provided the senior and
                                                                        service and the widest possible range of branded consumer
subordinated acquisition debt facilities for the transaction.
                                                                        technology and appliances. Noel Leeming promises its
                                                                        customers that it will never knowingly be undersold.
                                                                        Comprehensive after sales support is a critical point of difference
The Noel Leeming Group was part of Pacific Retail Group,
                                                                        to its competitors. With its significant retail footprint, Noel
a NZSE listed company. Pacific Retail Group announced its
                                                                        Leeming is uniquely positioned to offer its customers new
intention to list Noel Leeming Group in order to fund other
                                                                        technology based products such as liquid crystal display (LCD)
parts of the group. Following a direct approach by Gresham and
                                                                        and plasma TVs, cellular phones and services, digital cameras
instability in the public markets both parties worked together to
                                                                        and convergence technologies. Demand for these technologies is
effect the sale.
                                                                        growing and is expected to continue to drive growth in the Noel
Gresham Private Equity conducted extensive due diligence                Leeming brand.
into the financial and legal background of Noel Leeming using
                                                                        In May 2003, Noel Leeming opened its first new concept
Ernst & Young and Bell Gully and has undertaken in depth
                                                                        mega store, incorporating appliances, technology and furniture
industry analysis through specialist retail consultants
                                                                        under one roof. Covering a retail area of 3,668m2, the store is
The Brackenbury Group.
                                                                        based in the leading retail precinct at Wairau Park on
Roy McKelvie and Mark Youens of Gresham Private Equity have             Auckland’s North Shore. Early trading has been ahead of
joined the Board of Noel Leeming Group.                                 management expectations.

                                                                PRIVATE EQUITY

Noel Leeming has continued to grow
in the face of intense competition.


Noel Leeming Furniture                      costs have allowed it to strengthen its         Director of The Link. Prior to this he held
Noel Leeming Furniture was launched         competitive advantage in the sourcing and       various senior roles in marketing and
in two Auckland stores during the 2003      stocking of the best products at the lowest     operations within the Dixons empire.
financial year. A third store was opened     prices for its customers.
in May 2004 at Wairau Park in Auckland.                                                     TRANSACTION RATIONALE
The concept is to enhance the customer’s    Big Byte                                        We saw Noel Leeming as an attractive
experience by offering other substantial    Big Byte was launched in September 2001         investment opportunity because:
home living items alongside the existing    as a one-stop shop for all computer users,
                                                                                            • The business is the market leading
appliances they will find at Noel Leeming.   offering the newest technology and expert
                                                                                             electrical appliance retailer in New
                                            computer advice from knowledgeable
Noel Leeming Furniture broadens the                                                          Zealand and is more than twice the size
                                            staff. Customers can purchase a total
company’s offering to a one-stop-shop                                                        of its nearest competitor. It is the largest
                                            solution ranging from hardware to
for furnishing the home with furniture,                                                      distributor of Sony, Philips, Panasonic,
                                            installation to software upgrades. Big
appliances and consumer technology.                                                          Hewlett Packard and Electrolux in
                                            Byte’s leading brands include IBM, HP,
                                                                                             New Zealand enabling superior buying
Brands offered by Noel Leeming Furniture    Apple, Sony and Packard Bell. Big Byte
                                                                                             power, trading terms leverage and
include Morgan, Sleepyhead and              offers a wide range of products available
                                                                                             volume rebates.
Heartwood. It supports New Zealand          in the core categories it competes in, such
manufacturers, with the majority of         as computers, consumables, software,            • Noel Leeming has continued to grow in
products it stocks being locally made.      digital cameras and cellular phones. In          the face of intense competition. There
                                            the past three years Big Byte has increased      are significant low cost operational

Bond & Bond                                 the number of stores to five and now              improvements that will better define

With 35 stores and 320 employees, Bond      offers 4,452m2 of retail space. As part of       and deliver their offer in the respective

& Bond has an emphasis on audio visual      its customer centric approach, shoppers          brands that should deliver higher

products and provides its customers         can interact with technology. Children are       future growth.

with appliance, computer and electronics    catered for in the Kids’ Zone, where there
                                                                                            • Nick Lowe brings to the management
products in a no frills environment.        are interactive PCs.
                                                                                             team a wealth of international electrical

Bond & Bond’s product range is less                                                          appliance retailing experience balanced
                                            MANAGEMENT                                       with 6 years working in the New
extensive than Noel Leeming’s, but
                                            At the time of the acquisition of Noel           Zealand market.
provides selected leading brands at
                                            Leeming Nick Lowe was appointed as
the best possible prices. It is based on                                                    • Due to the vendor’s urgent cash
                                            the new Chief Executive Officer of the
a low-cost store format strategy that                                                        requirements, there was an opportunity
                                            business. Nick has significant experience
supports its price and value positioning.                                                    to buy the business at a material
                                            in electrical and general retailing in New
Until recently, many Bond & Bond stores                                                      discount to listed peers.
                                            Zealand and the United Kingdom.
could be found in mall and high street
                                                                                            • The business generates strong cash
locations. Now they are mainly found        Nick’s previous role was CEO of Farmers,
                                                                                             flows in order to service the acquisition
in destination shopping areas. This is      NZ’s largest department store, a role he
                                                                                             debt yet low relative leverage provides
increasing profitability by lowering rent    held for 4 years. Before moving to New
                                                                                             greater downside risks that many
costs and more accurately targeting its     Zealand Nick worked at Dixons, Europe’s
                                                                                             comparable size LBOs.
key demographic. Recent purchasing          largest electrical appliance retailer, for 13
improvements and lowering of operating      years. When he left he was Managing

                                                         PRIVATE EQUITY

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