Top ten things to know about the Majestic and Naked Wines merger

Last month following the announcement that Naked Wines was to be acquired by Majestic Plc for £70m, harpers.co.uk had an opportunity to talk with both Eamon Fitzgerald, the managing director of Naked Wines and the new chief executive officer, Rowan Gormley of Majestic Plc about what the merger would mean for their businesses.

The deal surprised many in the trade, as the two companies were able to keep the takeover quite quiet. But to be fair the deal was also done rather quickly, leaving less time for the rumour mill to kick into overdrive.

“It all happened in a hell of a rush,” said Gormley. “I had been looking at Majestic for ages and was saying, ‘we really ought to be working with them.’ They have all the bits of the puzzle that we don’t have. When Phil called he said ‘we really ought to be working together because you have all the bits of the puzzle that we don’t have.” It was then I thought ‘ah a kindred spirit’.”

According to Gormley and Fitzgerald, WIV Wein International which financially backed Naked Wines was looking for a return on its investment that it had made to help get Naked Wines off the ground. Gormley said: “What was clear was that if we were going to keep growing the way that we were growing, we needed different shareholders.”

Eamon FItzGerald

Naked Wines’ managing director Eamon FitzGerald 

Fitzgerald agreed: “We had a great investor from the start with WIV, the German-based company.  They reached a point where they wanted to see a return on their investment- which is fine. So we needed to find a new investor if we wanted to grow the business further.”

The rest was history and potentially the case of the right company at the right time. Here are som key facts to know following the acquisitions and look at what to expect in the coming months.

10 key facts to know about Majestic’s acquisition of Naked Wines:

1. The deal: Majestic may have acquired Naked Wines, but Gormley has no intention of truly integrating the businesses. There will be a “transfusion” of knowledge according to Gormley but Naked Wines will continue to operate in relatively the same way it does today.

2. The terms of the deal: In total Majestic will pay £70m to acquire Naked Wines. A cash payment of £50m will be paid on completion of the deal, with £30m going to cover outstanding debt and £20m going to WIV. The remaining £20m will be payable in Majestic ordinary shares if certain conditions are met.

3. Size of Majestic: According to its most recently released financial results that covered the first half of 2014 trading, ending on September 29, 2014, Majestic sales totalled £133.8m, with profits of £8.5m

4. Size of Naked Wines: Naked wines grew sales 40% in 2014 to £74m, but still made a loss of £3.3m due to its cash heavy model and investments made in acquiring new winemakers. The waiting list to become an ‘angel’  reached over 10,000 over the course of the year.

5. Management: Majestic ousted its previous chief executive officer Steve Lewis in February, following a challenging year for Majestic and was on the lookout for a new CEO.  Phil Wrigley the chairman found that Gormley would make an excellent candidate to lead the company and Gormley was appointed CEO of the company at the same time the deal was completed.  Eamon Fitzgerald remains the managing director of Naked Wines.

6. Headquarters: Naked Wines headquarters will remain in Norwich and Majestic Plc headquarters will remain in Watford Junction.

7. Expansion plans: When asked about his expansion plans to the proposed 330 stores, Gormley said that no formal decision has been made regarding the plans on expanding Majestic’s network. He said: “I really don’t see the logic of taking its two hundred stores to three hundred stores.  The next one hundred can’t be as good as the last two hundred.” Instead he sees the cash that Majestic generates into expanding Naked Wines. “The thing about Majestic is they are generating over £20 million in cash a year and the return on investments of growing Naked is better than the return on investment of opening new stores,” said Gormley. Further he added: “With the acquisition of Naked Wines, Majestic now has another avenue it can invest in.” 

8. Taking Majestic international: Gormley does not see expanding Majestic stores international as as a good use of the company’s money.  With Naked Wines having offices in the US and Australia, Gormley’s view is if he is investing in growth internationally, it makes sense to grow the side the business that is already in those places. “I think that the best way to expand from a low base in the US and Australia is the way we are doing it with the Naked model,” he said.

9. Changes at Majestic: There are three areas that Gormley wants to focus on changing within Majestic, however he did emphasis that there is no need for a massive turnaround plan. The three areas that he wants to improve upon are to get the entrepreneurial  “spirit back in to the company, stop taking stores to customers and bring customers to the stores and focus on customer loyalty.”  As part of getting customers back into the Majestic stores, Naked Wines will be launching it click and collect service at Majestic stores for its Naked Wine deliveries.

10. Changes at Naked Wines: Fitzgerald does not see a need for any major changes in the company’s ethos or how the model and how the company runs Naked Wines. What he does hope to do is further improve the business. With the new resources that are available through Majestic, Fitzgerald wants to grow the number of Naked winemakers, increase wine ranges from current winemakers and further improve customer service. “This investment give us the power to improve our service and improve our wine list. We will get better. We have the same team, the same ethos and the same way of working with winemakers only now we have the cash resources to grow the business and offer better services to our customers,” said Fitzgerald.

For a more in-depth analysis of the changes at Majestic and what can be expected in the coming months, please read what Eamon Fitzgerald and Rowan Gormley have to say in this month’s edition of Harpers. (subscriber only) A limited number of copies will be available at the London Wine Fair.

 

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