Advent International to acquire majority stake in Dufry

09.02.2004

SWITZERLAND. Dufry, one of the world’s leading duty free retailers, is to be sold to a group which The Moodie Report can reveal is headed by venture capitalist company Advent International for an undisclosed sum.

The proposed transaction was confirmed today by the German regulatory body Bundeskartellamt (Federal Cartel Office). The acquisition had to be filed with the German authorities because Dufry has had small duty free ferry business in that country.

The Bundeskartellamt is an independent higher authority which is responsible to the Federal Ministry of Economics. The main task of the organisation is to apply the Act Against Restraints of Competition, which was enacted for the protection of competition in Germany in 1958.

A Dufry statement said: “Due to the joining of a new majority partner, the shareholders have asked CEO Frédéric Gauchet, to free himself as of today in order to assist them in the successful conclusion of the transaction and to take care of their other interests.”

The closing of the transaction is dependent on receiving some administrative authorisations starting from 10 February 2004 – such as the Bundeskartellamt approval – and therefore for a short interim period the management of the group will be placed under the authority of the Board of Directors and in particular under the authority of chairman François Bueche.

The General Assembly of the shareholders and the Board of Directors underlined the fact that the transaction had been facilitated “thanks to the exceptional results that have been achieved by implementing a management system with high performance and by a transparency in all company levels; and this under the control of Frédéric Gauchet, who has achieved and exceeded the objectives defined by the shareholders.”

Dufry, formerly Weitnauer, is one of the travel retail industry’s longest-established companies. It boasts a powerful and diverse portfolio of retail interests in Africa, Europe, Asia, EurAsia, Latin America, the Caribbean and the US (see table below). Over the past two years it has divested its wholesale operation (still trading separately as Weitnauer Distribution) and transformed its financial viability under Gauchet’s leadership.

2003 is understood to have been the company’s best ever as it generated significant net profits, an impressive turnaround from the net deficit and near-bankruptcy Gauchet faced when he assumed the reins in 2001.

Founded in 1984, Advent International describes itself as one of the private equity industry’s oldest-established businesses and “the oldest global private equity firm”. Last year it spent over US$800 million on 26 investments across 12 countries.

Advent is no newcomer to duty free. In the second half of 1996 it was part of an alliance that acquired a majority shareholding in Aeroboutiques de Mexico. Later that year, it created Latinoamericana Duty Free, which was subsequently listed on the Mexican stock market in 1997.

Latinoamericana Duty Free, the leading operator of duty free concessions in Mexico (its main rival is Dufry), was subsequently acquired by Grupo Areas, a powerful Spanish group supplying retail and food & beverage services to travellers. Advent maintains close links with Areas, through the latter’s 40% shareholder Elior.

In turn, Areas created an alliance in 2001 with Elior, the French food & beverage giant (Europe’s third largest contracted food services business) to drive its international business forward. Advent International remains a shareholder in Elior, which was floated on the Paris bourse in March 2000, followed in 2001 by a secondary offering designed to restructure capital for further expansion and acquisitions.

Areas now operates travel-related businesses in Spain, Portugal, Morocco, Chile, Argentina, Mexico and the Dominican Republic. Besides the 40% stake held by Elior, it is also partly-owned by Emesa, a company belonging to prominent Spanish lawyer Emilio Cuatrecasas.

As revealed by The Moodie Report, Areas this month celebrated the opening of its 1000th outlet, including operations at 76 airports in seven different countries. It said recently it plans to invest €33 million during the course of 2004 in expanding its operations. In early February it opened a new food & beverage location at Barcelona International airport.

The Moodie Report comment: Today will inevitably be a day of mixed feelings within the Dufry camp. The company’s rollercoaster journey in recent years at one stage saw it perilously close to bankruptcy and embroiled in controversy over its past distribution activities relating to the tobacco sector. CEO Gauchet set out to make the group profitable, to modernise its business practices and to re-establish the group as a legitimate travel retail leader. Critically, he divested the group’s distribution business and introduced a new transparency. Clearly the approach has worked, as borne out by the interest of Dufry’s new and historically ambitious international investor, Advent (see profile below).

Where now for the group? Cleary Dufry now has significant clout and investment power behind it to develop its business significantly in coming months. Advent does not buy companies to tread water. Some duplication of management and locations will inevitably mean changes but one can safely predict that Dufry will pursue acquisitional and organic growth aggressively.

PROFILING THE MAIN AND RELATED PLAYERS

About Advent International

Advent has 17 international locations spread across North America, Latin America, Western Europe, Central Europe and Asia Pacific.

Retail is one of ten industries in which Advent claims particular expertise. It says all companies it invests in must have:

– a proven management team
– a strong market position or market leadership
– significant unexploited market opportunity
– significant growth prospects

In retail, Advent invests in a wide variety of businesses, including value and specialty retailers, high street and mail order firms, and luxury and branded goods retailers.

Recent investments include ILVA, Denmark’s second-largest furniture retailer, and Poundland, the UK’s leading single-price discount retailer. Poundland is a similar business to another of the company’s US retailing investments, Dollar Express, which was acquired in March 2000 by Dollar Tree Stores.

Recent IPOs are HMV Group (UK) and Kirkland’s (US). HMV, the world’s most successful retailer of music, books and videos, floated on the London Stock Exchange in May 2002. The float, Advent’s 127th IPO, valued the business at £1bn (US$1.8 billion).

About Dufry

In 2002 Dufry ranked seventh in Generation’s league of world duty free retailers. At that time it had shops at 59 airports in 31 countries, making it the most internationally diverse duty free retailer in the world.

Over the past two years, CEO Gauchet has introduced a series of sweeping changes, spinning off the distribution arm, reorganising management and procurement, decentralising regional head offices, exiting or renegotiating contracts and reducing headcount at the Basel headquarters (subsequently relocated) by around -42%.

The recipe worked. For the nine months to September 2003, EBITDA reached CHF 48 million (US$38.6 million) and EBIT CHF 28 million (US$22.5 million), despite a -8% fall in like-for-like sales in the SARS and war-hit first half. EBIT is expected to exceed well over CHF 40 million (US$32.2 million) for the full year.

Group 2002 results

Sales: CHF 1,019 million (US$820 million)
EBITA: CHF 61 million (US$49 million)
EBIT: CHF 32 million (US$26 million)

Group 2003 results (nine months to September)

Sales: CHF 637 million (US$513 million)
EBITA: CHF 48 million (US$39 million)
EBIT: CHF 28 million (US$23 million)

Key Dufry retail locations

AFRICA

– Ghana
– Ivory Coast
– Morocco
– Tunisia

EUROPE

– Baltic Sea
– Belarus
– France
– Greece
– Italy
– Netherlands
– Russian Federation
– Switzerland
– Ukraine

ASIA AND EURASIA

– Cambodia
– Georgia
– Israel
– Singapore
– UAE

LATIN AMERICA AND CARIBBEAN

– Aruba
– Barbados
– Bahamas
– Bolivia

About Areas

Areas entered the Mexican market in 2001, with the two acquisitions of Latinoamericana de Duty Free, duty free operator in 13 main airports of the country and airport food & beverage operator Aerocomidas. In total, Areas now has 202 locations in Mexico.

The sub-divisions of the Latinoamericana de Duty Free subsidiary include Operadora de Aeroboutiques (operator of duty free shops in major airports) and Deor (a retailer and distributor of beach merchandise, tobacco and craft goods in hotels and tourist airports – see below for details).

In the Dominican Republic, Areas recently acquired the gift stores business in five of the most important hotels of the RIU chain.

Areas’ Mexican subsidiary is called Geresa México. Geresa is the holding company of the following subsidiaries:

– Operadora Aero-Boutiques: Operates in the main airports of Mexico, denominated as tax -free or duty free stores; Also operates inflight duty free sales on Aeromexico. Operadora Aero-Boutiques operates 47 sale points in the country.

– Operadora Deor operates convenience stores for travellers in hotels, airports, tourist and business centres under different trademarks and business concepts. These include Tobacco Shop, Poco Loco, Minimarket, Mexican Souvenir and Gift, The Humidor and others. The main articles that are marketed in these stores are: newspapers and the like, books, crafts, food products, casual and beach clothing, tan lotions, toiletries, and others. It has over 130 stores in the main tourist destinations and airports of Mexico, in addition to several within hotels in the Dominican Republic where it currently operates in the tourist destinations of Punta Cana (four stores) and Puerto Platas (two).

History of Dufry and Weitnauer

– In 1865 the Weitnauer family opened a tobacco shop in Basel, Switzerland.

– By 1900 Weitnauer had become a major importer and distributor of tobacco products throughout Switzerland. Using its knowledge of the duty free supply chain and of the leading cigarette and beverage suppliers, Weitnauer built in the second half of the 20th century an important duty free wholesale business for the retailers operating in the major European seaports.

– Following the creation of the first duty free airport shop in Shannon, Ireland, in 1947 Weitnauer entered duty free, with initially as a pure wholesaler.

РIn 1952, Weitnauer became a fledgling retailer in opening its first store at Le Bourget airport in Paris. The store at B̢sle-Mulhouse airport was launched in 1962 and in 1969, its Italian operations started with a local partner at Linate airport in Milan.

– In 1960, Weitnauer launched an original duty paid business of cigarette vending machines in Switzerland under the brand Restomat. Later on, entertainment machines were added to Restomat’s assortment. Today, Restomat is the leader of the Swiss domestic market for cigarette vending machines.

– Through geographical expansion and diversification Weitnauer became a leading international organization offering duty free marketing services, sales and distribution resources to major brand owners.

– The group’s retail store portfolio grew rapidly worldwide in 30 different countries whereas the distribution business became more and more a niche market.

– As a result, Weitnauer decided to divest its distribution activities in 2002 and to focus on the vending machine retail business in Switzerland and on the travel retail sector worldwide. The latter was now established as the company’s core business on the international market.

– Through 2002 and 2003 the group’s corporate structures and its executive committee were reorganized accordingly.

– In 2003 the group changed its name to Dufry and the property of the name Weitnauer was transferred to the new owner of the divested distribution business which continues to operate under the name “Weitnauer Distribution”. The Dufry headquarters were also moved to a new building in Basel during the first half of 2003.

The data was retrieved from the following source: https://moodiedavittreport.com/advent-international-to-acquire-majority-stake-in-dufry/?format=pdf