Online retailer splashes out £32.5m on mobile phone company
Bolton based online retailer AO World is to splash out £32.5m on a firm which specialises in selling mobile phones direct to its customers.
The North West firm said it has agreed to buy Mobile Phones Direct for a cash-free, debt-free amount.
The Reading firm is the UK’s leading online-only retailer of mobile phones and operates through two online brands, Mobile Phones Direct and Smart Phone Company.
The firm’s websites had approximately 13.6 million visitors in 2017, up from 11.6 million in 2016.
It generated revenues of £121.7m and EBITDA of £5.5m in the year ended 31 March 2018.
A statement to the Stock Market said: “Mobile Phone Direct has an experienced senior management team, large customer base and strategic relationships with key mobile network operators and mobile phone distributors in the UK.
“The acquisition will significantly increase the scale and sophistication of AO’s mobile proposition, which is currently limited to the sale of handsets only.
“The combination of breadth of product and services across the two businesses presents a significantly improved offering for the combined customer base.
“The acquisition is a significant step in AO’s strategy of developing existing categories and services, and adding new complementary categories to its offering for the benefit of customers.
“It also provides access to a large and important market which is adjacent to AO’s current electricals offering and is well positioned to benefit from continued online migration.”
The deal is expected to complete next March.
AO World warehouse
Steve Caunce, chief executive of AO World, said: “This deal represents a significant step forward in our strategy of developing our growing range of online electricals and adding new complementary categories that customers want and expect from AO.
“Mobile Phones Direct already has a leading position within the UK online mobile phone market and is a business which is highly complementary to AO.
“In coming together, AO will achieve instant scale and be well-placed for future opportunities within a highly attractive and growing UK mobile phone market.
“With 5G services expected to launch over the next two years and as the electrical products we sell become more connected than ever before, moving further into the mobile market is a logical next step for us.”
Richard Baxendale, current chief executive of Mobile Phones Direct said, “This new venture marks an exciting moment for both AO and Mobile Phones Direct, creating something that we believe will be a real game changer for the industry.
“MPD’s experience of the mobile market will give AO a fantastic platform to expand this category and will crucially, enable both of us to offer an even more compelling proposition to our customers.”
The deal was led by the Manchester office of Deloitte.
Andy Westbrook, senior partner at Deloitte in the North West, said: “AO World is an innovative business that has demonstrated its ability to achieve growth both organically and through acquisition.
“Mobile Phones Direct represents a great strategic acquisition for AO World Plc, broadening its services and providing access to a large and important new marketplace.
“It has been a pleasure to work with Mark Higgins and the management team to deliver this deal, and we wish them every success for the future.”
Russ Mould, investment director at Manchester investment platform AJ Bell, said: “An acquisition announced by online consumer electrical retailer AO World today can’t distract from a weak trading update.
“Set up to disrupt the major domestic appliances market – such as dishwashers, washing machines, fridge freezers and so on – the company is finding the going tough in its two core markets of the UK and Germany where growth is slowing.
“Traditional retailers in this space have upped their game when it comes to having an online presence and while AO World is allocating marketing spend to boost brand awareness it still likely lags the likes of Currys PC World.
“The decision to buy online mobile phone retailer MPD is a brave move give the competitive nature of this market.
“Strategically, it will help AO to expand its reach across the broader electrical market. Yet it may not provide an immediate solution to the key problem with the business – ie when will it actually make sustainable profits?
“AO has developed a good reputation for strong customer service and its website has a wide range of goods. Unfortunately, sales haven’t been strong enough to offset the cost of doing business, so it still isn’t making money.
“It reported a £7m pre-tax loss in the year to March 2017, expanding to a £13.5m pre-tax loss in the following year.
“The consensus forecast among analysts is for AO to continue being loss-making until the year ending March 2020. At that point it is expected to squeeze out a mere £2.45m pre-tax profit.”
