Discount retailer The Warehouse hopes it's grabbed a bargain after buying electronics and appliances chain Noel Leeming from an Australian private equity firm for $65 million.
“I think it is a fair price, I think it is exciting for the group and it's good for the New Zealand consumer,” says The Warehouse Group’s chief executive Mark Powell.
The deal also includes Bond and Bond.
The Warehouse is paying $73 million less for the company than Australian private equity firm Gresham paid eight years ago.
“The company's described it as a fair price, but it's hard to see it as a bargain, says Nick Drasvitzki of Devon Funds Management.
“They've moved into a sector they don’t have any particular experience in and it's a very competitive sector.”
It's Noel Leeming's electronics sales that The Warehouse wants - a sector that's growing by 4 percent a year - but it’s a market that's highly competitive.
Noel Leeming lost $615,000 in the last financial year – though that's an improvement on a $3 million loss in the previous year.
“We have bought it debt free, it had a high level of debt which incurred a high level of interest, so the underlying profitability is there,” says Mr Powell.
Noel Leeming will continue to operate separately to The Warehouse.
“The distinctiveness is important and we will maintain that distinctiveness.”
But don't count on massive discounting.
“It's such a competitive space that I'd be very surprised to see prices come down much really,” says Mr Dravitzki.
Investors are taking a wait-and-see approach with The Warehouse share price remaining virtually unchanged.