South African fashion retailer Mr Price (MRPJ.J) has agreed to acquire NKD Group, a German discount retailer, for a total of up to 487 million euros ($568 million), spreading its reach into the European market.
Mr. Price stated that NKD, a retailer specialising in clothing and homeware, which operates 2,108 stores across seven Central and Eastern European countries, represented a suitable match. 
Following the announcement, Mr Price shares fell by 12.3%, raising investor concerns about the cost and the strategic implications of the acquisition, but the management of Mr Price is still hopeful that they’ve made the right move since market analysis indicates that the growth of value retail exceeds that of the overall market, constituting approximately 22% of the European retail landscape.
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Is This A Good Deal?
Mr Price’s annual revenue is expected to increase significantly from 40.9 billion rand to approximately 53 billion rand ($3.12 billion) following the acquisition of NKD, which will also raise its store count from around 3,100 to over 5,000.
However, investor sentiment is cautious due to the poor track record of South African retailers venturing into foreign markets, as noted by Alec Abraham, a senior equity analyst at Sasfin Wealth.
Casparus Treurnicht, a portfolio manager at Gryphon Asset Management, highlighted that many retailers that have tried this strategy returned with losses. He expressed concerns over Mr Price potentially overpaying for NKD, suggesting that the deal reflects a price-to-earnings ratio of approximately 35, which he considers excessively high.
Additionally, the acquisition could result in an increase in borrowings of about 5 billion to 6 billion rand, adding to a balance sheet that is currently debt-free, excluding leases.
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However, Mr Price’s CEO, Mark Blair, expressed confidence in the acquisition, stating that the alignment in business values and a strong understanding of customer needs were key factors in pursuing NKD.
The acquisition will involve the purchase of all shares and income from shareholder loans, financed through a combination of existing cash reserves and debt facilities.
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