Riachuelo is searching for a pair
- December 30, 2022
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Guararapes, controller of Riachuelo, is studying a merger with one of its competitors in fashion retail in the country. In recent months, seeking to strengthen its business with a broader and more diversified operation, the Rocha family company opened talks with Arezzo and with SBF, owner of Centauro. But, in addition to finding a partner with whom it has operational and cultural synergies, the Rochas want to maintain the majority position, according to sources – an extra challenge for an M&A.
The assessment of consolidation has been stimulated in the sector by the scenario of high interest rates, inflation and default, and by uncertainties about the guidelines of economic policy – a set of factors that has pressured the shares of retailers on the stock exchange.
Another motivation for Riachuelo to move is that the brothers Flávio, Lisiane and Élvio Rocha, with around 27% of participation each in the business, have different interests in the company, since the death of Nevaldo Rocha, the founding patriarch of the business, in 2020 – although the current movement, according to sources, has not been initiated by the company.
While Flávio Rocha and his children are the most engaged in the company and do not accept giving up control, Élvio, who does not participate in the day-to-day decisions of the company, Lisiane and the children are more flexible in relation to the sale of a majority position, according to sources.
The conversations between Riachuelo and Centauro were superficial. With Arezzo, which recently added clothing to its operations, potential synergies and structures were approached – but the negotiations did not go ahead, due to an assessment by the Birman family of “lack of fit”. Both Centauro and Arezzo continue to pursue other M&A opportunities.
With the survey of competitors, Riachuelo began to admit the prospect of a transaction and hired Safra bank as financial advisor. There was interest from private equity funds, but the family has a preference for a transaction with a strategic, not a financial partner. There is currently no offer on the table, but the retailer is not ruling out resuming talks with rivals later on, the sources say.
Also this year, Dutch retailer C&A sounded out potential buyers interested in buying its Brazilian operation. At the beginning of the year, it was offered to Riachuelo. In the view of a person familiar with the retailers, the combination between C&A and Riachuelo would be “a hug from the drowned”, since both had devaluation of the shares, have overlapping stores and there would be little synergy. In the case of Arezzo and Centauro, this same source assesses that there are complementarities.
In April of last year, two movements shook the sector. The Soma group bought Hering for R$5.1 billion. The operation involved money and the exchange of shares, displacing a proposal from Arezzo. That same month, Renner raised BRL 4 billion in the capital market to expand its business. At the time, speculation was about Renner’s M&A targets – speaking of C&A and Riachuelo – but the company did not make any major acquisitions.
Without a controller and with a market value of R$ 20 billion, Renner could be an obvious conversation for Riachuelo, with the Rocha family becoming a reference minority shareholder. But the company’s board of directors, defender of the corporation model, does not see a transaction of this type as the best path for the company today – which would serve more to remove a competitor from the market than effectively add to the business, full of overlaps, said a source close to the retailer.
The Guararapes group is worth BRL 3.1 billion on the stock exchange – a drop of almost 40% in one year and almost 70% in five years. The conversations between Riachuelo and competitors were anticipated yesterday by Bloomberg, which made the role of the retailer close with a fall of 10% today. C&A drops 65% in the year, SBF group drops 40%, Renner drops 12% and Arezzo rises 5%.
In order to maintain the requirements initially desired by the Rocha family, the outcome would have to be with a company of similar size – such as Centauro, with the same stock market value -, absorbing a company smaller in market cap, such as C&A, or aligning a block in a shareholder agreement, in the case of a company with a higher value like Arezzo, today R$ 8 billion. “It is not a simple lashing. Either it becomes an acquisition or a sale”, evaluates an industry source.
Sought, Flávio Rocha did not return to the interview request. Arezzo, Centauro and Safra did not comment on the matter. In a note, Guararapes informed that “it is always attentive to market opportunities that bring value to shareholders” and stated that this would not involve a change in the company’s control. C&A said it does not comment on market rumors or speculation and states that it “continues to be intensely focused on developing its business plans in the country”.
Source: Pipeline Value