JD Sports loses more than £50m in forced sale of Footasylum – should businesses do more due dilligence?

Sportswear chain JD Sports has been forced to sell Footasylum for £37.5m, just three years after purchasing the retailer for £90m.

The takeover was blocked by the UK’s competition watchdog, the Competition and Markets Authority (CMA), in November 2021. The CMA ruled that the merger could lead to less choice and a “worse deal” for customers.

JD Sports was highly critical of the CMA’s decision to block the takeover. However, in February this year, the two retailers were fined nearly £4.7m by the CMA for sharing commercially sensitive information during its investigation. Following the fine, Peter Cowgill, the former Executive Chairman of JD Sports, resigned.

Footyasylum is being bought by private equity firm Aurelius, which also owns Lloyds Pharmacy.

Founded in Bury in 1981, JD has more than 900 stores across 21 countries and sells a variety of well-known sportswear brands, including Adidas, Puma and Nike. Footasylum has more than 65 stores across the UK and also sells several well-known sportswear brands.

Should businesses do more due dilligence when making acquisitions?

Simon Neill, who is a Competition Partner at Osborne Clarke, says this acquisition highlights the risks of making an acquisition without prior approval from UK merger control.

He said: “JD Sports’ gamble to acquire Footasylum back in April 2019 for £90 million without seeking prior UK merger control approval should serve as a cautionary tale. The intervening three years have seen the most protracted UK merger review process in history: one that has included two in-depth six-month Phase II investigations, an appeal to the Competition Appeal Tribunal, a £4.7 million fine for unlawful information sharing, and a headline loss of £52.5 million on the eventual divestment of Footasylum.

“Too many acquirers fundamentally misunderstand the nature of UK’s voluntary notification system and the potential adverse consequences of the CMA asserting jurisdiction after completion has taken place.”

Marc Shrimpling, who is also Competition Partner at Osborne Clarke, said the breaches of the CMA’s orders by JD Sports and Footasylum always meant punishment was likely.

He commented: “The CMA was always likely to come down hard on these companies after they were caught having secret meetings in breach of the CMA’s strict orders not to share information until the investigation had been concluded. One such meeting in a car park in Bury was recorded by an undercover reporter for The Sunday Times.

“The increase in online direct-to-consumer sales by leading sports fashion brands is changing the retail landscape, but the CMA rejected the argument that this trend was enough of a counter-weight to justify a merger between two big High Street competitors.”