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Adams grows up fast

Since its MBO from Sears in 1999, profits at childrenswear retailer Adams have been shooting up 25% a year. Now it's grown out of initial financing and new chief operating officer Dean Murray is considering his next move.

Speculation about a possible flotation of Adams Childrenswear broke out last year after the company appointed a team from Andersen to advise on options for funding growth. Former FD Dean Murray, who was named COO in March 2002, says there’ll be no flotation just yet – but maybe one day.

Adams was bought by its management team from Sears for £87m three years ago. “When we completed the buy-out in July 1999 it was probably the worst time to do a retail MBO,” says Murray. “Sears was bought by January Investments in January 1999 and we had about six months of turmoil in the business when we were in interim ownership and were trying to do the MBO. It had been a tough spring and summer in the retail market and we had a hard time that year.”

Having completed the buy-out, the management team spent six months pulling the business back on track. “We also started to lead Adams away from being a traditional high-street retailer into the multinational distributor of kidswear that we are today,” says Murray.

Adams, which specialises in clothing for children aged up to eight years old, has opened operations in 100 Sainsbury’s outlets in the past two years and now has concessions in department stores such as Allders and Littlewoods. “We have also moved into mail order through a mix of catalogues, such as Freemans and N Brown,” says Murray.

The company’s latest reported figures highlight how far the business has turned round. For the six months to January 2002, Adams achieved sales of £133m, a 9% increase on the same period last year, to go with a 25% increase in trading profits from £14m to £17.5m. Adjusted trading profits for the year to July 1999, at the time of the MBO, were just £7.8m. “We’ve been achieving compound annual growth in profits of around 25%,” says Murray.

So healthy was growth last year that the management decided to bring in Andersen in August 2001. “We recognised that we were two years post-MBO and we needed to think carefully about what we did next,” says Murray.

“We felt we needed some external challenge in developing the options for the business going forward, so we called in Andersen. We had identified that the business has massive growth opportunity, so what was our best way of achieving that? Would it be through a flotation, through merger and acquisition, maybe through a trade-sale to a party which could help us deliver growth, or could we inject capital ourselves, through some form of recapitalisation?”

This latter option is the current favourite, and is potentially scheduled to go ahead in the next three-to-four months. The original venture capital backers – Bridgepoint (NatWest Equity Partners as was) – will remain involved. “They have been great supporters and will want to remain with us,” says Murray.

So flotation is not on the cards – yet. “It’s probably not the right time for a retail company to go to market and it’s probably not the right time on our growth curve,” says Murray. “If we were to go now we wouldn’t necessarily realise the best deal for shareholders. We are nowhere near the top of our growth curve and there’s still a great opportunity to grow shareholder value.”

Adams’ current growth is already causing a management realignment. Now he is COO, Murray, who has been with Adams since 1991, will hand over responsibility for finance to a new finance director, who is currently being recruited.

Meanwhile, the management team are following several strategies to drive growth. Market analysis suggests there is potential to increase Adams’ current total of 325 UK own-name stores by another 200 and to grow its international franchise operation.

“We have 47 stores overseas, in the Middle East, the Gulf States, Cyprus and Malta,” says Murray. “We have identified enormous opportunity to expand further. We recently signed an agreement with an Indian partner in Delhi and we are in talks with another major potential partner in Asia, which would involve a significant store roll-out. Then there are further European opportunities we are looking at.”

Back in the UK, Murray sees potential to develop opportunities through the new channels – the partnerships with Sainsbury’s, mail order operators and concessions. “Our vision for Adams is that we build it into the largest, most successful kidswear business in the world,” he says. By that time, the company surely will have floated.

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