Wesfarmers Ltd (ASX: WES) has announced it is acquiring Catch Group for $230 million to try to win the online retail war.
Wesfarmers is a 100 year-old conglomerate which at various times has owned and operated some of Australia’s largest retail brands such as Kmart, Target and more. Today, its largest business is Bunnings Warehouse, the number-one DIY home improvement business.
Wesfarmers’ Acquisition
Wesfarmers has announced that it is acquiring Australian online retailer Catch Group for $230 million, to be paid for in cash.
Catch Group owns the website catch.com.au. Wesfarmers described the business as an established, profitable and cash-generative business that operates an online model that offers branded products on a first-party basis and a third-party online marketplace.
The business has two fulfilment centres located in Victoria to support the online operations.
Wesfarmers said this acquisition made sense as investing in and building its data and digital capabilities is important. The old conglomerate also said it was disciplined with the acquisition and that it was an adjacent opportunity next to its existing retail businesses.
Assuming the acquisition goes ahead, Catch will operate as an independent business unit under the Managing Director of Kmart Group, Ian Bailey.
Wesfarmers Managing Director Rob Scott said: “This acquisition represents an opportunity to accelerate Wesfarmers and Kmart Group’s digital and e-commerce capabilities whilst continuing to invest in the unique customer and supplier proposition provided by Catch Group.”
Does This Deal Make Sense?
It certainly would create some synergies for Catch’s operations as it would be able to use the buying power of Wesfarmers to purchase products for a cheaper price. This could boost profit materially due to the low profit margins that retailers (including online) operate on.
In the longer term it could be useful for Wesfarmers to build its online presence because Kmart and Target are not known for being large online retailers (yet).
We didn’t get to see what valuation Catch Group was acquired at, but knowing Wesfarmers it was probably at a reasonable price.
I think Wesfarmers is a more attractive investment idea after the purchase, but not a lot more. That’s why I would still rather invest in the reliable ASX shares in the free report below, which have been hand-picked by our lead analyst.
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