Mon, 30 Jun 2025 | BUSINESS SALE
Back in March 2025, private investment form Modella Capital offered to buy WH Smith’s high street business for £52 million. The acquisition was believed to have been initially structured as an all-cash offer.
However, soon afterwards Modella began a re-trading (price-chipping) strategy, and sought to renegotiate better terms, citing a weaker trading outlook and reduced cash flows from the stores.
What was the rationale for the acquisition of Modella Capital by WH Smith?
This can be understood within the context of several key market dynamics:
• Systematic Undervaluation of UK Companies: UK mid-cap firms, including WH Smith, were trading at historic discounts - often 40 to 50 per cent below analysts’ fair value estimates, due to sustained outflows from UK equity funds and a lack of domestic institutional support.
• Buy-and-Build Strategy: Modella Capital, like many acquirers in 2025, targeted undervalued UK platforms with the intention of scaling through further acquisitions or operational improvements. The goal was to integrate businesses, achieve synergies, and eventually exit at higher global multiples.
• Sector Resilience and Brand Strength: WH Smith’s established brand, diversified revenue streams (across travel and high street retail), and strong cash generation made it an attractive platform for Modella’s growth ambitions, especially as the UK retail sector showed resilience post-pandemic and amid economic recovery.
• Favourable Financing Conditions: Lower base rates compared to previous years made acquisition financing more attractive, and Modella Capital likely saw an opportunity to leverage WH Smith’s relatively stable cash flows.
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