The ability to gaze into the crystal ball and see through existing sales figures is an increasingly important demand from current investors.

With numerous well-known high street failures over the past few years, the ability to gaze into the crystal ball and see through existing sales figures is an increasingly important demand from current investors.

While all may appear rosy on the surface, the real fundamental in pre-deal research is to uncover the red flags that threaten to derail what once seemed such steady and unstoppable growth.

Tom Holt, divisional director at retail and consumer consultancy Pragma, says that investors are now increasingly looking at what future potential stumbling blocks could arise, with a heavy emphasis placed on customer trends.

Holt explains, ‘At the heart of all of our projects we will always make sure that we are fully informed of how customers are behaving and what motivates them to buy, but it must also be a case of understanding the trends that are occurring in the market.’

It’s to do with the buying and purchasing decisions of today’s consumers, says Holt, in the light of a tightening of purse strings that has occurred across a large segment of the population.

Looking through the surface figures, a more important consideration for today’s investors is the future potential – how sustainable the current brand, proposition and management team are.

‘In some ways it has become more difficult to get deals through in the past 12 months,’ Holt comments.

‘Simple early-warning signs that come to light are when companies talk about small good news almost to keep the bad news out of the limelight; and from a consumer perspective it can be quite easy to believe that a retailer is doing well when they talk about good results in a small area of its business.’

It’s about ‘putting mist into the market’ to hide poor results, he adds, and while it’s tricky to get to the bottom of it, Holt says developing methods that identify the key warning signals can really help investors with their decisions.

‘Being able to benchmark a business’s performance against its competitors and other industries adds the extra flavour that investors need to have confidence in the strength of a venture,’ Holt says.

Pragma was part of the team that helped women’s retailer Phase Eight secure investment from Towerbrook Capital Partners and assisted LGV Capital in its acquisition of Snow + Rock. Holt says the important work done here involved both operational and commercial due diligence to help understand the market, the trading performance and the roll-out of potential new stores.

With Pragma part of the Ebeltoft Group, a network of 18 retail consulting businesses in 15 countries around the world, access to local knowledge means that it can take on projects in international territories.

One such project where this proved essential was the commercial due diligence provided for RBS Equity Finance in its acquisition of luxury skincare brand Erno Laszlo.

‘It was really about looking at what the potential growth would be in the US, Hong Kong and China,’ says Holt. We were able to use our local resources to understand the customers and brand potential in those regions.’

In examining the wider investor market, he says that lenders are now being far more scrutinous about the work that investors are doing, on both a financial and commercial front.

However, Holt is bullish about market prospects: ‘If companies are in the right shape and have a good business plan and strong management, there are plenty of suitors out there who will invest.’

Tom Holt
Director
Pragma Consulting
Tel: 020 8744 1222
Email: t.holt@pragmauk.com
Web: www.pragmauk.com