Travel Markets Insider Newsletter Vol. 16 No.18 Dufry buys Nuance

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In what is arguably the biggest deal in the travel retail industry, Dufry has signed an agreement to acquire 100% of The Nuance Group (“Nuance”) for a consideration of CHF 1.55 billion, on a debt- and cash-free basis. Nuance is a global travel retailer that operates close to 75,000 square meters of retail space in 66 locations across 19 countries in Europe, Asia and North America. When combined with Dufry, the new company will become the leader in the global duty free and travel retail market, with a global and geographically diversified concession portfolio and strong positions in developed and emerging markets covering all continents.

Highlights of the deal include

Combining Dufry and Nuance will confirm Dufry as the global leader in the airport retail industry reaching 15% of worldwide market share with presence in 5 continents, 63 countries, 239 airports with close to 1,750 shops
Strong fit of Nuance’s business complementary with Dufry’s operations in the Mediterranean, Europe, Asia as well as the United States and Canada
Total purchase consideration of CHF 1.55 billion to be financed with CHF 1 billion in equity and CHF 550 million in new debt
Strong value creation for shareholders – robustly accretive to cash EPS as of 2015 financial year and double digit accretive thereafter

In 2013, Nuance generated a turnover of CHF 2.1 billion and an adjusted EBITDA of approximately CHF 156 million.

In 2013, the two businesses had a combined market share of close to 15% in the airport retail industry based on turnover. The geographic presence of Nuance is complementary and strengthens Dufry’s positions in strategic key markets in the Mediterranean, North and Central Europe, Asia and the United States and Canada. As a result of the transaction, Dufry will emerge with a leading position in the Mediterranean in addition to its existing leadership positions in Latin America, Caribbean and North America. In addition, the acquisition will strengthen its diversified business in Asia with attractive locations that will provide a strong basis for further growth in the region.

In North America, Nuance operates mostly duty free formats in locations that fit well into Dufry’s existing retail network. The acquisition reinforces Dufry’s position in the United States and Canada and will help Dufry to further gain market share in the duty free and duty paid segments.

In the Mediterranean, Nuance’s operations in Turkey, Malta and Portugal complement Dufry’s existing operations in the region, where Dufry has activities in eight countries, such as Italy, Greece, Spain, Morocco and Egypt.

In Eastern Europe, Dufry will have a strong market presence in Russia, and add activities in Bulgaria.

In North Western Europe, Dufry will become the preeminent travel retailer in Switzerland and have activities in Sweden as well as the UK, most notably at London Heathrow Airport.

The combination will also strengthen Dufry’s presence in Asia with Nuance’s leading presence in the region empowering the group’s positioning. Nuance’s concessions in mainland China, Hong Kong and Macau will be complementary to Dufry’s operations in mainland China, South Korea and Taiwan. In South East Asia, the combined entity will have a presence in Cambodia, Indonesia, Sri Lanka and Nuance will add airport retail activities in India and Malaysia. Overall, the combined business is creating an attractive platform for further development in this important region which has been one of Dufry’s key areas of growth.

Dufry will integrate Nuance into its organisation and expects to generate cost synergies starting in 2015, with the full run-rate impact of approximately CHF 70 million pre-tax synergies per year at the Nuance level being reached by 2016. Dufry expects to realise an improvement in the gross margin through increased purchasing power and the integration of Nuance’s purchasing into its supply chain and logistics platform. Furthermore, Dufry expects that the combination of the global and regional organizations, as well as global support functions, will create significant value. The pre-tax integration expenses related to the acquisition are expected to be approximately CHF 20 million in 2014 and CHF 10 million in 2015.

A transformational step in the development of Dufry

Julian Diaz, Dufry’s CEO, commented: “The acquisition of The Nuance Group by Dufry is a transformational deal not only for Dufry but also for the travel retail industry. This acquisition is a continuation of the global diversification strategy which we have communicated and executed for many years and that is based on profitable growth through three main pillars: like-for-like growth, new concessions and acquisitions.

Dufry has been a key player in the consolidation of the fragmented travel retail industry and we have been delivering significant value through acquisitions. We have been consistently delivering synergies and diversified our concession portfolio worldwide step by step, thus avoiding concentration risk for any specific region or location. With this transformational transaction, we make another big step forward in this respect and bring our global scope to a new level. Also, the scale and breadth of our business will be changing the scope of the travel retail industry going forward.

The combination of both organizations will further strengthen our current concession portfolio, adding new countries and operations that have a very strong fit with Dufry’s regional strategy. Nuance will reinforce our presence in Asia, Mediterranean, North and Central Europe and North America.

We have identified substantial synergy potential in the acquired business mainly from gross profit margin improvements and cost synergies. Overall, we expect synergies at Nuance level to be generated starting in 2015, with a full impact of CHF 70 million starting in the financial year 2016. Additionally, there is further synergy potential of the transaction for Dufry’s existing operations in terms of gross margin improvement and economies of scale in logistics.”

Julian Diaz is scheduled to speak at the ASUTIL Conference taking place this week in Mexico City.