BT has reportedly re-partnered with British investor Aurelius Group with a view to launching a bid for musicMagpie, in what could be a route to extend the operator’s reach into consumer electronics under the ‘New EE’ strategy, while adding energy to circular economy plans.
musicMagpie, which is yet to bounce back from a year of setbacks including losses and revenue decline, confirmed discussions with the BT–Aurelius consortium this morning, adding that the talks remain at a “very early stage”.
Seemingly formalised, stock exchange policy dictates that BT and Aurelius now have until 18 December 2023 to announce a “firm intention” to make an offer.
A self-proclaimed “circular economy pioneer”, musicMagpie buys, refurbishes, and sells consumer electronics. An initial public offering in 2021 valued the business at around £200m, but subsequent missed revenue targets, squeezed margins, and a failed attempt in the US market have sent stock value plummeting to approximately £20m.
The retailer’s share price peaked at +30% in morning trading after the confirmation. BT was unmoved, perhaps reflecting the comparative scale of the two businesses.
No valuation has been attached to a musicMagpie buyout, but Aurelius tends to look at businesses with equity investment requirements of up to £100m, with claimed specialisms in corporate spin-offs and divisional carve-outs. The Telegraph reported that musicMagpie brought in Deloitte to post a ‘for sale’ sign over the weekend.
BT in 2006 paid a suggested £30m for dabs.com, which at the time was one of the UK’s leading online technology retailers with revenue of around £200m and claim to one million customers. dabs.com was subsequently merged into the consumer-oriented BT Shop (now EE Store) and BT Business Direct operations, which did not live up to ambitions to take on major players in the sector.
This is not the first time BT’s and Aurelius’s paths have crossed. The firm acquired in-house fleet management unit BT Fleet Solutions for a reported £200m in 2019 and subsequently rebranded it to Rivus (BTwatch, #332). Aurelius acquired beauty brand The Body Shop earlier this month and has bought high street brands such as Footasylum in recent years.
musicMagpie’s dull shine
musicMagpie posted a half-year revenue decline of 14% in the period to 31 May 2023 (H1 FY22–23), down to £61.9m. Chief Executive Steve Oliver conceded that H1 was hit by a “challenging” Q1, but reminded investors that the retailer regularly relies on H2 results to boost earnings, a nod to seasonality of trade including the impact of Black Friday.
musicMagpie is focusing on a “buy for less, sell for more” strategy to eke out higher margins. This did enable higher gross margin in the Consumer Technology segment in H1, despite the plummeting revenue.
Oliver claimed that management had a “clear plan” for musicMagpie’s rental business and deferred payment scheme, which “should drive sales”. Expectations were also set high following investment in a kiosk rollout programme that boosted ‘buying’ and acts as a “prominent musicMagpie advert” in 290 ASDA stores.
Overall, musicMagpie posted £3.2m in pre-tax losses in H1, a degradation on the £1m losses in the prior H1.
Fresh enough for New EE?
The obvious problems facing musicMagpie, and the CEO’s admission of a “tough consumer environment” that does not look set to let up, make for questions about BT’s intent with Aurelius.
While BT is yet to comment, and the announcement this morning was said to come “without the consent” of the prospective bidders, there are some apparent synergies between the musicMagpie business and the ambitions of BT’s revamped consumer brand.
So-called ‘New EE’ is being remodelled by Consumer CEO Marc Allera as a one-stop B2C (and to extent B2B) retail platform for BT/EE customers and beyond, under the latest strategic initiative launched earlier this year.
With EE the flagship BT Consumer brand, Allera aims to market an expanded products and services portfolio accessed via an EE ID account — in a bid to drive up convergence and brand presence in UK homes beyond those with BT/EE-branded connectivity packages.
The lofty goals require a shift to B2B2C sales, according to Consumer Chief Digital Officer Kevin Lee. Speaking to TelcoTitans in October, he said that a B2B2C approach will unlock value “as demonstrated by tech companies”.
The approach has thus far seen channel partnerships in pay-TV with Apple and the gaming industry, including tie-ups with Activision’s Call of Duty, Microsoft’s Xbox, and Nvidia.
Seeking circularity: BT’s ESG criteria require outside help
Another area of crossover is BT’s designs on improved circular economy credentials.
Like all majors telco, the Group has device lifecycle management built into its environmental, social, and corporate governance (ESG) metrics.
Though BT’s recycling interests extend to its network infrastructure — headlined by an Exchange Clearance Operation that seeks to reduce waste and reuse resources during Openreach’s network upgrade programme — it is also clear that consumer devices are on the priority list.
BT aims to “build towards a circular BT Group” by 2030, and a “circular tech and telco ecosystem” by 2040. These currently vague mantras with little in the way of commitment, the sentiments will require work to be done to target consumer devices, with recycling and refurbishment initiatives a given.
Engagement with a GSMA initiative means BT is expected to increase the take-back of mobile phones and boost recovery of devices to prevent mobiles from going to landfill. The trade group has a 2030 deadline for operators to be collecting used devices equivalent to 20% of the number of new ones being distributed to customers; and ensure that 100% of collected mobile devices are repaired, reused, or recycled.
BT is also actively seeking partners to reduce the waste generated by its infrastructure rollout and improve the circularity of materials involved. Partnerships will likely be integral to achieving comparable outcomes on the consumer side of things, too.
With musicMagpie available, and ostensibly on the cheap, BT could exploit the opportunity to both advance its circularity goals and strengthen its hand in consumer electronics trading. This may be appealing to BT if it wants to keep arms-length, with EE acting as an anchor tenant to drive internal targets with relatively low exposure to what is clearly a challenging re-commerce market.