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The flourishing grey pound sparks a City scramble to buy garden centres

With the economy suffering a prolonged drought, private equity firms are buying garden centres up and down the country as City financiers look for a refuge from all the uncertainty and tap into the British love of lawns and plants.

Britain has an estimated 2,000 garden centres, from tiny nurseries to well-appointed venues attracting coachloads of day trippers stocking up on supplies before heading to the restaurant for lunch.

Last month, private equity firm Terra Firma paid £276million for 128 centres through its acquisition of The Garden Centre Group to add to its portfolio of wind farms, Odeon cinemas and property.

Terra Firma’s chairman and founder, Guy Hands, is a Guernsey-based tax exile whose wife and children famously have to travel to the island to visit him. He has identified what he strongly believes will be a promising retail opportunity. A Terra Firma insider said that Hands, the former owner of EMI, was interested in the stability of garden centres’ sales and profits.

‘The target audience tends to be the well-off over-45s market. There’s a stability you don’t get on the High Street,’ said the source.

Among Terra Firma’s biggest rivals is Tesco, which controls Dobbies Garden Centre, which it bought in 2008. Dobbies has 32 outlets and a turnover in excess of £100million, but Tesco has said it has ‘ambitious growth plans to be a £1billion business with 100 stores within the next ten years’. Clothing chain Next last year opened its first garden centre.

David McCorquodale, retail merger and acquisitions partner at corporate adviser KPMG, said: ‘The so-called grey pound is proving a reliable source of revenue. The key to success for any centre is for it to be the destination of choice in the area, and that usually means having more to offer, such as cafes and children’s play areas. The risk as ever is that they are very seasonal businesses, reliant on the British summer, and indeed we have seen a few insolvencies at the smaller end of the market.’

That the larger, multi-faceted centres are seen as the future has not been lost on Phil Slinger, chief executive of Britain’s Garden Centre Association. He restricts membership to the top 200 garden centres and even some of Britain’s biggest chains have only a fraction of their outlets approved.

Slinger says the market is worth £4.8 billion and is expected to grow five per cent a year between now and 2015, well ahead of even the most ambitious retail market forecasts.

‘Competition is tight between garden centres and big DIY stores and supermarkets,’ he said. ‘But our members have an abundance of entrepreneurial spirit and passion to remain in the premier league.’

Richard Perks at market researcher Mintel said sectors that attracted older shoppers tended to be better insulated because those consumers tended to be mortgage- free and benefited from a stable income based on traditional, cast-iron pensions.

‘It’s an odd market and very much one that is stronger with older people who don’t otherwise spend a lot of money in shops on the High Street,’ he said.

The predictability of spending may be the driving force behind the new investment, but it is the asset backing – large land holdings in attractive areas – that may provide the way for big investors to raise money and earn back some of their purchase price in the future.

As garden centres pack away the hoses this summer and introduce more drought-resistant plants, the private equity backers will be hoping for a rosy future.

Source : Neil Craven & Hawkes – Mail on Sunday

08 April 2012
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