On December 11th, leading European retailer Zalando announced plans to acquire online fashion retailer About You, in a deal worth €1.13bn ($1.19bn). This will be an all cash transaction, with Zalando paying €6.50 a share. J.P Morgan are serving as financial advisors to Zalando, while About You is being advised by Deutsche Bank and the transaction is expected to close in the summer of 2025, subject to regulatory approval.
Founded in Berlin in 2008, Zalando is one of Europe’s leading fashion retailers, offering over 6,000 lifestyle brands to more than 50 million customers, across 25 markets. Zalando also operates in the B2C sector, supporting brands in scaling their e-commerce businesses through its advanced software. In the third quarter of 2024, the company demonstrated robust growth, with its operating profit margin rising to 3.9% and quarterly revenue from its online fashion platform increasing by 4.3% to €2.2 billion. Additionally, its logistics business grew by 11%. This growth was driven by rising consumer demand that has benefited the whole industry, arising mainly from cooler weather as well as easing inflation and lower interest rates. In October, Zalando raised their profit outlook for the year, anticipating continued strong growth in the fourth quarter, albeit at a more moderate pace.
Similarly, About You is a German fashion and lifestyle retailer and one of Europe’s fastest growing e-commerce platforms. Founded in 2014, the retailer has over 12 million active customers, with a major appeal to younger shoppers through frequent collaborations with social-media influencers and prominent individuals from sports, music and film. Additionally, the company operates a highly regarded B2B enterprise software platform ‘Scayle’, used by 200 shops across Europe and North America, including Manchester United.
The strategic rationale behind the acquisition lies in enhancing Zalando's B2B and B2C capabilities. The deal presents substantial revenue synergies, enabling Zalando to broaden its customer base by tapping into About You’s younger demographic of customers. The acquisition will allow Zalando to capture a larger share of the fashion and lifestyle market, especially pertinent given the rapid growth of low-cost online fashion platforms like Shein which has led to a trend of bigger players in the market looking to expand their market share by acquiring smaller rivals. In B2B, About You’s ‘Scayle’ software will perfectly complement Zalando’s e-commerce operating system Zeos, to offer merchants a unified platform to manage their operations across Europe. Zalando expects the transaction to generate an earnings boost of €100 million, with the combined entity projected to grow at a 5-year compound annual growth rate (CAGR) of 5-10%.
Regarding the financial details of the deal, Zalando’s offer of €6.50 a share represents a 12% premium to the median analyst target price for the share and a premium of 107% to About You’s 3 month volume-weighted average share price. Zalando’s shares fell by 9% following the announcement of the deal, reflecting negative investor sentiment with equity analysts expressing concerns that the deal could be overpriced and affect short term profitability, given About You’s recently losses. In contrast, About You’s shares were up by 64% in morning trading. Despite scepticism about the purchase price, Zalando’s CFO Sandra Dembeck believes that the deal will be “very value accretive” in the long term.
Overall, the acquisition seems promising from a strategic standpoint, with strong compatibility between the two companies. The vast revenue synergies on offer should help Zalando maintain strong growth in this competitive market. However, it will be interesting to observe whether the high premium paid by Zalando is justified and the transaction is financially successful.
Written by: Akhil Raghavan
Sources: MergerLinks, Press Releases, Reuters, FashionUnited
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