Nick Scali buys UK furniture chain Fabb; taps investors for $60m

Nick Scali boss Anthony Scali is about to snare a long-time dream of making a move into Britain with the purchase of UK’s Fabb Furniture.

Nick Scali CEO Anthony Scali’s long-held dream is close to being ticked off. Picture: Chris Pavlich

Furniture retailer Nick Scali has made its widely anticipated push offshore and into the British market after a deal to purchase specialist UK home furniture retailer Anglia Home Furnishings.

The target will be ultimately rebranded as Nick Scali, and paid for via a capital raising up to $60m that was also announced on Wednesday.

Founded in 1979, the loss-making Anglia trades as Fabb Furniture and has a long-established presence in the UK home furnishings market from where it operates a 21-store network all located in out-of-town retail parks and predominantly in large-scale format.

Its total retail real estate footprint is over 24,000 square metres realising over 39,000 square metres of retail space with good tenure.

However, it has struggled of late and is expected to make a small loss this financial year, with Nick Scali chief executive Anthony Scali confident he can turn that around over the next 18 months as the stores are refurbished, rebranded and stocked with Nick Scali-sourced furniture.

Mr Scali said he also wasn’t worried about confusing shoppers by rebadging the stores as ‘Nick Scali’ and that his deal was more about the store locations and potential for that store network.

“Their brand has no brand strength at all at the moment,” Mr Scali told The Australian.

“The store locations are in good retail parks, good centres, so they are living off others at the moment and we think our product is the right product ... we will then rebadge and build the brand.

“The store network is good, the rents are pretty good.”

There will then be room to significantly increase the performance and profitability of the Fabb Furniture chain as it transforms into Nick Scali with it operating at much lower profit margins than its rivals and Nick Scali confident it can improve that over time.

Mr Scali said currently Fabb Furniture offered more lower end and cheaper furniture, with that to be transformed into a middle to higher positioned furniture retailer akin to the successful model and positioning of Nick Scali in Australia.

The move comes after years of speculation that Nick Scali would use its incredibly successful and profitable operations in Australia to make a bid for a much larger market, namely Britain.

Mr Scali said it had been a long-held dream for his furniture chain to expand into Britain, with im talking about the opportunities for years and now ready to act.

“It is the next step for us, more international expansion, and I always believed the British market was very similar ... it has been my inclination that the UK should be the first step and I have talked about it a lot.”

The retailer Nick Scali was founded by his father, Nick, and Mr Scali said his dad is “always the optimist” and entrepreneurial and when he told him about the British deal his response was “do it”.

Nick Scali has called a trading halt in its shares to prepare for the equity raising, which will help pay for the business and be used to help rejuvenate the British retailer’s balance sheet which comes with some debt and an option to exit a distribution centre.

Nick Scali will also use the funds to inject some more capital into the acquired furniture chain.

Under the deal announced, Nick Scali will acquire Fabb Furniture for a consideration of £2m ($3.82m) and all of the secured debt owed by Fabb furniture for £3.5m. Nick Scali intends to pay £500,000 to exercise the option to exit the existing distribution centre arrangement and also provide a net working capital injection of up to £6m.

According to Nick Scali’s investor presentation, Fabb Furniture is forecast to deliver £34m of revenue and £14.1m of gross profit in fiscal 2024 (March year-end) and a loss of £2m. However, it should emerge profitable within 18 months.

The deal will be funded by a $46m underwritten institutional placement and a $4m conditional placement to an entity associated with Mr Scali, subject to shareholder approval at the annual meeting in October. The capital raising is priced at $13.25 per share, against the last trading price for Nick Scali shares of $14.07.

Eligible existing shareholders will be offered the ability to participate in a non-underwritten share purchase plan to raise up to $10m.

“The acquisition of Fabb Furniture provides an opportunity to enhance our geographic diversity and scale beyond Australia and New Zealand for the first time,” Mr Scali said.

“(It) provides us an immediate entry point into the large UK market with a 21-store network across key locations; a scaled platform to establish the Nick Scali brand and product offering in an attractive new market.”

Fabb Furniture’s gross margin is estimated to be approximately 10 percentage points lower than larger UK competitors on a like for like basis, providing plenty of potential to crank out better profits when rebadged as Nick Scali and offering furniture sourced by the Australian retailer.

“As we did when we acquired Plush, we believe we can leverage the Nick Scali buying power, combined with our supply chain and logistics capabilities, to deliver significant gross margin uplift for the UK business.”