Frasers Group Invests £10 million in THG’s Technology Spin-off

THG has successfully secured nearly £100 million from both new and existing investors, including a significant £10 million investment from Mike Ashley’s Frasers Group, aimed at supporting the launch of its struggling technology division, Ingenuity.

Frasers Group, known for its retail brands such as Flannels, House of Fraser, and Sports Direct, made this strategic contribution as part of the overall fundraising efforts.

This investment extends a prior collaboration between THG and Frasers, which formalized a strategic partnership in June that featured a multi-year agreement focused on Ingenuity, along with the use of Frasers’ credit and loyalty initiative, Frasers Plus.

Additionally, THG’s founder and CEO, Matthew Moulding, invested £10 million in this equity raise, with long-standing institutional investors contributing around £50 million.

Previously recognized as The Hut Group, THG announced plans to gather £75 million through share issuance and subscriptions. On Friday, the firm disclosed that it had surpassed this goal, amassing £95.4 million. The shares were priced at 49p, reflecting a 5.2 percent discount on the closing price from Thursday.

THG stated that the newly acquired funds would offer Ingenuity essential support for its development into a distinct, privately-held entity. However, the capital infusion did little to mitigate investor anxieties, resulting in a 7.7 percent decline in THG shares, which settled at 47p.

Ingenuity, which employs around 3,500 staff and operates 13 distribution centers worldwide, provides technology solutions that bolster the online retail operations of various clients, such as Holland & Barrett, The Range, and L’Oréal.

The proposed demerger entails THG retaining its beauty and nutrition division, encompassing brands like MyProtein and Cult Beauty, aiming to streamline operations into a more efficient, cash-generating business capable of offering future dividends.

Once viewed as THG’s prized asset, Ingenuity has yet to turn a profit. THG is optimistic that the demerger will clarify its organizational structure and strengthen its financial standing.

John Goold, CEO of activist investor Kelso—which owns shares in THG and has previously advocated for the company’s breakup—commented that THG has made a “strategically sound decision.” He posited that this could attract potential buyers interested in acquiring the business.

Andy Wade, a Jefferies analyst, characterized the demerger as a “smart move” that grants investors more control over the subsequent distribution. This would result in a listed entity comprising two high-quality, strategically pertinent, cash-generating global consumer brands, thus unlocking potential valuation gains.

Co-founded by Moulding in 2004, THG’s journey since its London stock market debut at a £5.4 billion valuation in 2020 has been tumultuous. The company, which also owns the City AM newspaper, has experienced a roughly 90 percent decline in its market valuation following disappointing sales and ongoing governance disputes. Moulding has expressed regret over the company’s public listing.

In tandem with the demerger, THG has sought to amend its listing category on the London Stock Exchange to qualify for inclusion in FTSE indices. This strategy aims to enhance the visibility of its shares, potentially leading to their addition to the FTSE 250.