Core Equity Holdings which has agreed in principle to acquire Dutch high street staple Hema for about €1bn is set to transform the very Dutch stores group into a big international player according to an analysis by the Telegraaf.

‘You can do two things to develop a company. Tackle costs or expand,’ says Kitty Koelemeijer, professor at Nyenrode university. ‘There’s little more that can be done with Hema on the first point after  two previous owners private equity groups KKR and Lion Capital were through with the company.  And Hema can only expand abroad.’

Brussels-based Core Equity was formed in 2017 mainly by former executives from US-based Bain Capital and Hema will be Core Equity’s second purchase. Like Bain itself, Core Equity targets companies in need of major restructuring.

Hema’s Dutch market has reached saturation point, Koelemeijer says. She thinks the number of outlets will shrink as franchises – which account for 40% of the more than 500 stores in the Netherlands – are not renewed.

Hema has developed a new more international stores concept under its current CEO Tjeerd Jegen. Koelemeijer says Hema has two strong points for international development: its strong own-design line of products and the new stores concept which is extremely exportable and already being used outside the home market.

The Nyenrode professor adds that Hema has enormous potential to grow in other countries. Hema now operates in nine countries but earns the most in the Netherlands. There are relatively few stores abroad: only  70 in France and fewer than 10 each in Britain, Germany and Spain.

Hema opened its first store in Austria this year and is readying four in Dubai. Hema has a partnership in Dubai with Apparel Group which operates 1,750 stores worklwide for brands such as Tommy Hilfiger, Calvin Klein and Rituals

Long-term

Koelemeijer believes  Core will opt to expand Hema through similar joint ventures. ‘This will enable Hema to expand abroad with lower capital costs,’ she explains.

Core identifies itself as a long-term investor, aiming to ‘take the long view, stay the course and follow through’. This is the opposite approach to that of current Hema owner Lion Capital.

Bankers do not expect Core Equity to refinance Hema’s substantial long-term debt of some €750m, the Telegraaf says. Hema has performed well in recent years and profitability is in sight, the paper notes. Hema posted a loss of €30m in 2017, but that was the result of extremely high costs of servicing the debt and hiring in consultants for about €23m, the paper said.