Waterstones: must it be private equity?

Nicholas Clee
Opinion - Bookselling Monday, 30 October 2017

Sale to the wrong buyer would threaten the strategy behind chain's revival


The news that "several private equity firms are already studying" Waterstones will raise some alarm bells in the book trade.

According to the Sunday Times, bankers from NM Rothschild are contacting potential buyers of the bookselling chain, having been appointed for the task by Alexander Mamut, Waterstones' Russian owner. He is reported to be needing to raise cash following the Russian central bank's takeover of the bank Otkritie, in which he is a shareholder and which has "a hole in the books of between $3.3bn (£2.5bn) and $6.5bn". A further complication is that Waterstones has about $100m of loans from a Cyprus-based bank in which Otkritie has a stake.

The news comes as Waterstones, much to the relief of the wider book trade, has been enjoying improved fortunes under md James Daunt. The chain reported a pre-tax profit of £9.9m in the year to April 2016, on sales up 4% to £409m. The Sunday Times reports that Waterstones has generated almost £40m in underlying earnings this year, "so bankers said it could be sold for between £200m and £300m". Mamut bought Waterstones for £53m; despite his difficulties, he can congratulate himself on a good investment.

What is alarming about this news is that the policies that have contributed to the turnround are not ones likely to appeal to private equity backers, notoriously fixated on short term gains. Yes, they will like Daunt's reduction of Waterstones' returns rate. But the restoring of individuality to the branches: this has been a key factor in Waterstones' recent successes, but it does not appear superficially to be a cost-effective way of running national retail chain. Private equity companies, one fears, are more likely to favour "compliance": the policy of chain-wide backing of commercial, lead titles that got Waterstones into the mess from which Mamut and Daunt rescued it.

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