The Global Economic Impact of Private Equity Report 2008 - World ...

institutional investors why this initiative was necessary.”Given the cash‐intensive aspect of the investment, buildingthe new distribution centre required a willingness to accepta short‐term slowdown in profit growth. One year later the pressreported strong progress in New Look’s transformation. 14Changes to both the chain’s distribution network and its designteam contributed to an 18.8% rise in total sales during the 14weeks up to 1 January 2005, according to management. NewLook doubled the number of designers working on new rangesto 22 and also strengthened its buying and merchandisingteam 15 (see Exhibit 3 for New Look’s key financials).Larger Store Format Management felt the threat of marketconsolidation and the need for New Look to broaden itspresence in the market. In the UK, this was done in part bysheer physical presence, e.g. through acquisitions of theleases and/or property of 30 former C&A stores and newstore openings. In addition, a rebrand campaign waslaunched in 2004: “The New Now” gave New Look a moreupmarket image, and presented a clean, modernfashion‐oriented store image consistently across the chain.The management team and the new investors looked closelyat expanding the company’s clothing and accessoriesranges, wanting to roll out their larger store format further byoffering a wide range for the whole family. They followed arollout of menswear across many stores after the buyout andalso launched a separate children’s clothing line.International Expansion Management pushed expansion intoother European countries and the Middle East with new storeopenings in France, Belgium, Ireland and Dubai. “Expandinginto Europe and Dubai was another key driver in theirtransformation process,” said an insider. “This too wouldhave been difficult to pursue while listed on public marketswithout being punished by decreasing price shares.”New Look EmployeesThe public‐to‐private transaction was supported both by themanagement team and New Look’s employees. Employeesacross the ranks, from middle management and beyond,were very excited about the deal, as they felt this would givethe company the opportunity to expand the brand furtherand with it, their own career development, as New Look’spresence grew in the market.Employee Incentives According to Wrigley, many employeesfelt the public‐to‐private transaction brought a culture ofinclusion to the company. While New Look had been publiclylisted, employees had always had the opportunity to ownshares; however, post‐buyout, a new programme was setup, giving management and a large proportion of employeesthe opportunity to become New Look shareholders.Committed to taking as many people with them as possible,the management wanted a vehicle for employees to directlyparticipate in New Look’s transformation process. Twenty ofNew Look’s extended management team invested directly in14Liz Morrell, “New Look grows up”, Retail Week, 8 April 2005.15“Happy Progress at New Look”, 4 January 2005, www.newlook.co.uk, accessed 4 December 2007.the company as it went private. Four levels of managers wereable to participate: executive directors, operative directors,controllers, senior managers and select store managers witha particularly good performance rating. To give a wider groupof employees the chance to participate in New Look’sdevelopment, The New Look Trust for Employees was set up,enabling employees to indirectly hold shares in the companyas beneficial owners of The Trust. By mid‐2006, over 300people had invested in the option scheme via The Trust,rising to nearly 500 in 2007. The participation schemeswere developed jointly by shareholders and management.Shareholders proposed the structure and the amount of equityavailable and worked with advisors to turn them into reality.Management worked on allocating the equity amongemployees and communicating the message.The private equity partners were committed to maintainingthe status quo in terms of New Look’s employment policies.It was considered a general policy for both investors tosafeguard the existing employment rights in a company wheregrowing the business is the key management objective. Oneof the private equity investors said: “It was very clear early onthat New Look was a growth story, not a restructuring story.The turnover of staff is relatively high in retail and our aim wasto keep employees longer, to increase retention particularlyfor key people.” Therefore, there were no changes to termsor conditions of employment including staff benefits, e.g.staff discount, life assurance, income protection for seniormanagers, medical insurance or company cars, and thebonus scheme remained unchanged. Training anddevelopment programmes for employees remained in placeand were reviewed and improved in the normal course ofevents. As employment conditions were unaffected by thebuyout, employee satisfaction remained constant.Employment Growth The company did not buy any newentities, continuing to grow organically. From March 2004 toMarch 2007, group employee numbers grew by 8.9% perannum, from 12,166 to 15,708 employees; full‐time equivalentheadcount grew from 6,498 to 8,120 (see Exhibit 4 foremployment development). New Look was able to outperformsome of its main UK competitors, such as Marks & Spencerand Debenhams, who realized less employment growth overthe same period. However, several market players had evengreater average number of employee increases (see Exhibit 5for employment information across select competitors).Employment increased across different categories andfunctions, with slightly higher growth in part‐time employeescompared to full‐time employees. Group employee costsgrew annually by an average of 14.0% from 2004 to 2007.Employees in administration and distribution were decreasedbetween 2003 and 2007 in order to increase efficiencies inproduction and distribution. The higher efficiencies were alsocaptured in increasing employment productivity, e.g. withEBITDA per employee increasing 6.4% per year betweenMarch 2004 and March 2007 (refer to Exhibit 4).The Global Economic Impact of Private Equity Report 2008 Case studies: New Look 107