DFS, the UK’s biggest independent furniture retailer, will this week unveil a takeover of fast-growing rival Sofology just weeks after a profit warning sparked fresh fears of a slowdown in consumer spending.
Sky News has learnt that DFS, which has a market value of more than £450m, is close to agreeing the purchase of Sofology in a deal understood to be worth an initial £25m.
Sofology, which trades from nearly 40 stores across the country, is said to have been pursued by DFS for some time.
The purchase will be the latest in a string of acquisitions by DFS, which returned to the stock market in March 2015.
A year earlier, it bought the premium brand Dwell out of administration, while in 2013 it acquired Sofa Workshop, which at the time had 14 stores.
Although DFS’s shares have risen modestly during the last year, the timing of its latest purchase may raise eyebrows in the City.
Less than two months ago, it warned that an earlier forecast of “a softer market environment” in the second half of its financial year had “weakened beyond our expectation, with significant declines in store footfall leading to a material reduction in customer orders”.
DFS added that it believed the slowdown in demand was a result of uncertainty following the General Election and broader macroeconomic concerns.
The company, which trades from about 110 UK stores, is due to provide a further trading update next week.
Its move to buy Sofology, which was disclosed by a supplier in the furniture industry who had been briefed on the transaction, will add a fast-growing competitor to the DFS stable.
Sofology’s accounts for 2015 showed a 39.5% rise in turnover to £142.9m, with earnings before interest, tax, depreciation and amortisation of £3.8m.
The accounts said it had secured debt and equity funding during the year from Bill Holroyd CBE, an investor and philanthropist, and the Greater Manchester Combined Authority.
One furniture industry source said the deal could be worth much more to Sofology’s shareholders than the initial £25m purchase price, depending upon future performance.
Rothschild is advising DFS on the deal, while GCA Altium is advising Sofology.
DFS declined to comment, while Sofology could not be reached for comment.