Terra Firma touted as most likely Dobbies buyer

Sale of Tesco-owned company would mark upswing in consolidation in garden centres.

Right time: having written down its property portfolio in 2015, Tesco made a Dobbies  sale much more viable - image: Dobbies
Right time: having written down its property portfolio in 2015, Tesco made a Dobbies sale much more viable - image: Dobbies

A bid from Terra Firma to buy Dobbies Garden Centres is widely expected following owner Tesco's hiring of investment banker Greenhill to sell its 35-centre chain this week.

The private equity group owns Wyevale Garden Centres and has bid at least twice for Dobbies in the past two years, but the group has not managed a deal so far, despite having funds available and Tesco having stopped investing in the centres over the past three years.

The sale of Dobbies, after eight years of supermarket ownership, would mark a big upswing in consolidation in UK garden centres, and bring all the issues for suppliers that that entails.

A Wyevale purchase of Dobbies would create a 188-centre group turning over more than £400m, covering the whole of the UK mainland. That is Terra Firma's long-held ambition, which sources say is undimmed, despite the group having an average five years ownership of companies. Terra Firma bought Wyevale in March 2012.

A scenario would see a separate private equity company buy both Dobbies and Wyevale, particularly as Terra Firma put Wyevale on the market recently for £700m. Dobbies' price is thought to be closer to £200m.

Terra Firma has funds available and in 2015 former Wyevale chief executive Kevin Bradshaw said he was interested in buying "a group of 30 garden centres", while Terra Firma chairman Guy Hands said in the same year buying Dobbies was "in the hands of Tesco".

Mdj2 associates director Andy Newman said former Wyevale chief executive Nicholas Marshall could be interested too: "If true, this is a really interesting development for the market, especially given it looked a few months ago like Dobbies would stay in the Tesco fold. You would have to assume that Terra Firma will be very interested, however the business will also appeal to other private equity buyers, including Nicholas Marshall and his backers. The true value might come from selling-off individual key sites as these might appeal to a wider range of buyers such including Blue Diamond."

And Dobbies former chief executive - James Barnes - who left the company in 2013, could return to take over.

Marshall said: "James Barnes has been the best person running Dobbies in the last 20 years and he would be the best person to operate Dobbies because he knows a great deal about the business."

A management buy-out of Dobbies is thought unlikely, and a management buy-out of Wyevale, which has a new chief executive and chief financial officer, is also believed to be improbable.

Hayloft Plants owner Derek Jarman said Tesco initially brought excellence and new ideas to garden retail when it bought Dobbies for £155m in 2007 and that it would take "someone with deep pockets" like Terra Firma to buy the group.

But he added: "For growers that only supply Dobbies it is a big worry. If you're a medium-sized grower with Dobbies in your portfolio it's a problem and could take a big chunk of turnover."

Cantor Fitzgerald investment analyst Freddie George said: "They're trying to restructure so it's obvious to offload. It was a good business that has been badly managed by Tesco."

George said a private equity bid "depends if there is a roll-out story with Dobbies" to add value, which there is not.

He added: "The concept was interesting but rather lost shine since Tesco took over."

New Hopetoun Gardens owner Dougal Philip has seven Dobbies within 45 minutes drive of his centre, which is near Edinburgh.

He said: "We've been waiting for so long for this. The impression we had was they had far too much stock and their buildings were over-valued, and they have certainly dealt with the latter."

Dobbies wrote down the value of its properties in December 2015 by £54m. The group planned to reach 100 centres by 2018 but has stalled in recent years as Tesco hit difficulties. Turnover rose from £142m to £152.9m in the 53 weeks to 1 March 2015. Staff numbers are around 2,800.

Philip added: "From the point of view of the trade, if it became a more positive place, that's good for everyone. From employees' point of view, it needs more enthusiasm. It would be good to sell it, because Tesco obviously aren't interested. I suspect it could be a good bargain if stock levels are discounted. But it won't make a huge difference to us because we tend to do the opposite to what they do."

He said: "Customers like the big car parks and it's a safe place for them to shop. Horticulture is just one amongst their seasonal departments.

"If they are sold as one big group they will still have quite big problems making each store individual.

"Obviously Wyevale will be interested because they have a huge gap in their UK coverage (in Scotland).

"The last one that opened in Livingston was stealing trade from the two Dobbies on either side so as far as Scotland is concerned they'd be shooting themselves in the foot if they opened more, but the UK is a big place."

Perthshire's Glendoick Gardens director Ken Cox agreed Dobbies has not become the concern expected when Tesco bought it: "Tesco's running Dobbies, and the relatively poor job they have done of it, has been good news for independents.

"They are far less of a threat than they used to be when they were well run and upmarket. Tesco has moved the brand downmarket and flagship stores such as Dalkeith is nothing like as good as it used to be dominated by a franchise village," he said.

"Sandyholm in Clyde Valley used to be the best garden centre in the region. Now (after Dobbies bought it in 2008) the garden centres nearby have all benefited. If someone really determined to move Dobbies upmarket then they could be a threat again. But it all depends what Wyevale do and whether they want to buy Dobbies or not.

"I can't see any other obvious suitors, apart from the usual 'buy it and sell it on boys'. I always thought John Lewis would have been a good fit."

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