April 2013: Demand for garden centre businesses is as strong as ever, higher than in recent times, despite the unseasonal weather over the last 12 months. And it is demand which is backed by financial clout. This demand is not just from the groups, but also from independents of varying sizes. Despite the current reluctance of banks to lend, Gilbert Evans reports it has successfully sold four garden centres within the last eight weeks and is reporting demand across all areas of the country.
The increase in demand appears to reflect the underlying strength of the garden centre sector. Confirming many experts’ views, weather-related trading issues are not going to fundamentally affect the dynamics of a sector which is destined for further growth and which has outperformed the high street over the last 12 months.
Demand from groups is particularly strong with a number of operators going on record that they are aggressively looking for new sites. These include The Garden Centre Group, Notcutts, Blue Diamond, Haskins and a number of others.
In Mike Gilbert’s opinion this level of demand is likely continue to continue for the next couple of years. He advises clients that if they are considering a sale, current demand may well result in very strong prices being paid. Many operators continue to trade strongly and feel they are not yet ready to sell. However his advice would be to start planning an exit strategy now if a sale is desired within the next five years. Groups in particular are prepared to pay for potential. Whilst many operators feel that if they drive the turnover upwards they will obtain maximum value, and to some extent this is true, there is a level at which that principle no longer applies. This is when it becomes difficult to recognise where the potential exists, and that is then reflected in the price achieved.
Demand is for both leases and freeholds. Gilbert Evans has seen an increase in demand for leases, as highlighted by the recent transactions at Chinnor and Highgrove. Mike Gilbert anticipates this trend continuing because whilst banks are clearly prepared to lend to the garden centre sector, they are not prepared to lend as freely as in previous times, and therefore it makes sense for operators to use their capital to improve existing infrastructure, and expand via the leasehold route. According to Gilbert Evans nearly all the groups will consider leasehold transactions, which is a significant change from even only five years ago.
Gilbert Evans has sold businesses at Chinnor Garden Centre, where Dingley Dell took a new lease; QD Stores further expanded its Cherry Lane Garden Centre portfolio with the acquisition of Bradmore Garden Centre in Nottinghamshire; Whiteleys Garden Centre, where Gilbert Evans acted on behalf of the administrators and most recently at Highgrove Garden Centre where Milbrook has taken over the business. In all instances Mike Gilbert reports that there was significant demand with prices achieved in line with or in excess of expectations. Gilbert Evans is currently marketing a number of other garden centre businesses confidentially and reports similar levels of interest.