Allegro makes partial exit from Australian retailer Best & Less

The private equity firm offloaded approximately 12.9m shares for AUD 2.30 apiece, reducing its holding from 43.55% to 32.43%, according to a filing. Best & Less stock fell 17% on August 31 in response to the sale, closing on AUD 2.24. The company has a market capitalisation of approximately AUD 280m, which means Allegro's remaining stake is worth AUD 91m.

Shares in Best & Less are down 45% year-to-date but remain above the IPO price of AUD 2.16. The company raised AUD 60m in July 2021 with retail industry veteran Brett Blundy investing an additional AUD 40m. Allegro realised AUD 91.3m. In October 2021, when Best & Less was trading at a 55% premium to the IPO price, the private equity firm was sitting on an IRR of more than 500%.

Allegro acquired Best & Less in late 2019 as part of a portfolio of brands owned by Greenlit Brands. Steinhoff International, Greenlit's South Africa-based parent was keen to fill a hole in its balance sheet by divesting assets, and the Australia portfolio was already underperforming.

"Top line and profitability were declining, the balance sheet was bloated, and the parent was a motivated seller. At the time, retail was also on its nose and very few people were interested in that kind of business," Fay Bou, a partner at Allegro, told AVCJ last year.

The other brands in the portfolio were restructured and sold off, allowing Allegro to focus on Best & Less. Key initiatives included improving governance, balance sheet optimisation, building out omnichannel capabilities, digitalising front and back-office operations, and implementing a growth strategy that emphasised the value segment with baby and kids as the core category.

COVID-19 arrived at a relatively early stage of the investment and impeded progress, with each of the company's 250 stores across Australia and New Zealand impacted by lockdowns. For a time, Best & Less was running at zero revenue and 100% cost.

Best & Less continued to trade in Australia because it was designated an essential retailer, but online sales penetration rose from 3% to 10% during an initial six-month period of uncertainty. It laid the ground for a rapid turnaround, with EBITDA tripling within the first 20 months of ownership.

For the 12 months ended June 2021, revenue reached AUD 663.2m, up 6.1% year-on-year. EBITDA jumped from AUD 27m to AUD 71.6m, while net profit rose from AUD 16.1m to AUD 47m.

Allegro closed its fourth fund on AUD 750m in May, beating a target of AUD 600m. It includes a sidecar to facilitate larger deals. The first investment from the new fund - the acquisition of petrol station chain Gull New Zealand - was announced last month.

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• Topics
• Australasia
• Open market
• Consumer
• Australia
• Allegro Funds