Dubai’s Marka keeps an eye out for acquisitions

Dubai: Acquisitions are certainly not going to go out of style at Marka, the retail investment firm. In fact, the Dubai-based, publicly-traded entity is seeing a steady line-up of takeover possibilities trying to claim its attention. And more could be on the way.

“What has become pretty obvious to us in the last 8-10 weeks is that we are being offered more businesses for investment or acquisition,” said Nick Peel, CEO. “And the majority of them do not fit with the profile of being profitable or scalable.

“Undoubtedly the current economic climate is softening to some degree... experience tells me that we will be offered more opportunities for acquisitions or investments, particularly during the first-half of 2016.”

But Marka will, Peel insists, not be cajoled into making new commitments in a hurry. “The good thing about the Marka board and its 151 founders is there is no one holding a gun to my head saying we need to make an acquisition by March 2016,” said Peel. “These are very savvy businessmen and acutely aware that sometimes these deals take a bit of time, particularly if you are doing the correct diligence.

“Marka is here for the long term, there is not going to be any knee-jerk reactions with the acquisition or franchise opportunities we are looking at right now.

“It would be particularly prudent of us to see what opportunities present themselves in 2016,” said Peel. “We would only be interested in profitable businesses where we have the potential to scale those businesses. We have to have the ability to grow those businesses. First-half of 2016 would be my aspiration.”

It’s portfolio of existing acquisitions — the Reem Al Bawadi restaurant chain and Cheeky Monkey among others — are certainly showing up well on the top-line numbers, with Marka reporting revenues of Dh84.08 million during the third quarter. But profitability failed to catch up, with the firm reporting a net loss of Dh14.72 million for Q3-15.

But Peel says that Marka can take the loss in its stride. He says that the five acquisitions made to date will benefit from having a full year or trading in 2016. “Some of the acquisitions we made such as Reem Al Bawadi and Retailcorp UAE came on board from April, May and June... even having that quarter 1 revenue will improve our trading performance significantly.

“Marka will be in profit in 2016. The most positive reflection from our Q3 results (was) reflected in a positive EBITDA (earnings before interest, tax, depreciation and amortisation) figure, which was warmly received by our founders and shareholders.

“[There were] two key components that impacted on the Q3 figures. We had a number of acquisition costs — it makes sense for us to wash those through as we approach the end of 2015 rather than we carry into 2016.

“And for some of those acquisitions costs such as Reem Al Bawadi, Morelli’s and Icons, there was only a short peak time from when we acquired those brands and when they traded through. Q3 also has two of the potentially slowest months of the year — July and August.

“The positive [Q3] EBITDA figure is a great accolade. I am confident our Q4 figures will show a marked improvement.”

But Marka is not just seeking scale through acquisition gains. In recent months, it has been building up its direct franchising operations, on the apparel side. Another growth boost will come from introducing F&B concepts designed in-house.

“Western brands are still drawn to Dubai, the UAE and GCC like moths to a flame,” said Peel. “Don’t forget they are very tough mature retail markets in their regions. And the obvious way to increment sales and profitability is to diversify into the Middle East.

“A lot of brands who come here fishing have little understanding of the local market and so sometimes there are harsh lessons to be learned. A heavy dose of reality kicks in.

“Our approach has been somewhat different. We have a very clear view on particular sectors that we would be interested in franchising.

“It isn’t just about the numbers... not just about the revenue. It is about the quality of the management team that exists in those companies and whether we can achieve a comfortable cultural fit. That’s what’s driving us at this point in time.

“There is sometimes speculation that Marka is viewed as an acquisition vehicle, a venture capital player. We are none of those things.

“We are fundamentally a retail trading company, and acquisition was only part of our initial plans to achieve some critical mass. I think more importantly it was to secure some businesses we felt had potential to scale not just in the UAE but across the GCC, and indeed some of them internationally.”