What’s Going On Here?
Homebase, the DIY giant, has been sold by its Australian owner for £1 after it has faced a disastrous two years in the retail market.
What Does This Mean?
The Australian company Wesfarmers acquired Homebase for £340 million from Home Retail Group in 2016 in an attempt to dominate the DIY sector in the UK. Their original plan was to rebrand Homebase as Bunnings; the name of Wesfarmers’ DIY chain in Australia. However, after an extremely poor performance in its first two years, which can in part be explained by the immediate dismissal of the original Homebase senior management team, operational miscalculations such as failing to stock essential winter items and appliances, and a general underestimation of the highly competitive retail market, Wesfarmers have been forced to sell the company in order to cut its losses. It has been sold to Hilco, the restructuring specialist who is responsible for the survival of the music chain HMV in 2013.
Why Should Firms Care?
This is a classic case study of an acquisition gone wrong. Wesfarmers believed it could crack the UK DIY market but drastically failed in its evaluation of the competition and the demand of its consumers. It has been described by John Colley, a professor at Warwick Business School, as “one of the great all time disasters in the merger & acquisition world”. Before selling the DIY chain, Wesfarmers had considered closing up to 40 stores in an attempt to curb losses and returning to profitability in the long term. However, Wesfarmers managing Director Rob Scott stated considerable “capital investment [would have been] necessary to support the turnaround”. Ultimately a sale was the most prudent move forward. However, the sale itself was described by Mr. Scott as “very disturbing” and still leaves Wesfarmers with a £230 million loss, making the attempted acquisition a complete failure and severely damaging trust in the Australian retail group’s overall capability.
It is unclear exactly how this sale will affect the 250 stores and the 12,000 employees of Homebase, however what is certain is that the 24 stores that had been converted to the Bunnings brand will revert to the original Homebase name. Although Homebase has faced a tumultuous two years, its future certainly looks more hopeful under Hilco. This firm of restructuring specialists received the “Turnaround of the Decade” award in 2017 for its revival of HMV. With experienced leadership, additional capital and a long history in UK retail to draw upon, the DIY chain may yet build itself back up.
Article written by Connor B.
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