French global duty free and travel retailer, Lagardère Travel Retail (LTR) has agreed to buy North American airport retailer, Paradies, for $530m from Freeman Spogli & Co, the Paradies family and other shareholders to create the second-largest DF&TR player in North America with sales of $800m.

The transaction will lead to the acquisition of 100% of the equity of the Paradies holding company [representing approximately 80% of the activities in aggregate] while, in accordance with US regulation, Paradies activities are operated at each airport with dedicated legal entities including minority partners, representing approximately 20% of the enterprise value of the Paradies Group.

The deal is subject to regulatory approval and the agreement of several third parties but is expected to be finalised during the fourth quarter of this year.

Combining the activities of LTR in North America and Paradies creates the second-largest DF&TR player in North America with a presence in approximately 100 airports. In the fiscal year ended 28 June 2015, Paradies generated sales of $515m [consolidated at 100%].

76-AIRPORT ESTATE ADDED

The retailer has positions in a number of US and Canadian airports including major hubs such as Atlanta, Los Angeles, Chicago, Dallas-Fort Worth, Denver, New York-JFK, San Francisco, Charlotte, Las Vegas and Phoenix. In total the family company is present at more than 76 airports.

LTR says: “In recent years Paradies’ sales growth has largely outperformed passenger air traffic growth in the US thanks to its recognised operational excellence, the increased diversification of its activities and the development of new concepts. This growth has also been driven by the development and continuous expansion of retail space in airports.”

The company has been a consistent winner – consecutively over 20 years – of the Best Airport Retailer award by airport trade magazine ARN which covers the North American market.

COMPLEMENTARY FIT

In recent years, Paradies has expanded its activities into foodservice, which ties in with one of LTR’s three core retail pillars. LTR also claims that Paradies’ nationwide coverage is complementary with its own which is stronger in Canada and some US airports including New York-JFK and Los Angeles.

LTR says that the airport DF&TR market in North America [91% concentrated in the US] is estimated to be worth $7.7bn, which justifies its expansion there.

The company also notes its specificities adding: “The market is characterised by a segmentation that differs from that of other continents. Its growth potential resides primarily in the expansion of the food services and speciality segments as well as in the modernisation of airport terminals.”

The US travel retail market – often criticised for its old-fashioned approach – has also become more sophisticated in recent years with new terminals and better retail facilities, taking inspiration from European, Middle Eastern and Asian models.

SYNERGIES OF $15M FROM YEAR FOUR

In addition to sales synergies, significant cost synergy potential (purchase conditions, structure costs, etc.) would be generated starting in the first year of integration. Recurring synergies could reach approximately $15m a year as of the fourth year after acquisition.

Gregg Paradies, President and CEO, will remain at the helm of the new company, facilitating the integration process.

Dag Rasmussen, Chairman and CEO of LTR, says: “This acquisition transforms the presence of Lagardère Travel Retail in North America. It significantly strengthens our business and allows us to expand our concession portfolio and to develop relationships with our brand partners and suppliers. We are very pleased to welcome Gregg Paradies and all his employees to the group. Together, we will aim to create a regional leader and break new ground.”

Gregg Paradies adds: “Paradies and Lagardère share many similarities including our strong family cultures. The combination of resources and experience will help accelerate our growth and competitiveness in this very dynamic industry.”

TRANSACTION FINANCING

The $530m acquisition will be paid in cash by LTR via a bridge loan and then refinanced as necessary in the markets. The additional debt would bring the Lagardère Group’s ‘net debt to recurring Ebitda’ ratio to slightly below 3x at the end of 2016.

Lagardère was advised by JP Morgan, and Willkie Farr & Gallagher provided legal representation led by partners Thomas Cerabino, Annette Péron and Adam Turteltaub. Paradies was advised by Barclays, with Morgan Lewis providing legal representation.