Falabella Enters Brazil

Chilean retailer SACI Falabella has entered a new market in LatAm, through a Brazilian acquisition seen as small compared to its bottom line, but offering significant growth potential down the road. Falabella’s Sodimac home improvement unit has agreed to buy a majority position in Brazil’s Dicico for BRL388m ($190m), Falablella says. In the deal it will acquire 50.1% stake in Construdecor, which operates the Dicico chain of home improvement stores. Some BRL319m will come through the issuance of new Construdecor shares, and the remainder through the sale of shares from existing holders. The Chilean will rely on its own cash, as well as possible debt financing, to fund the purchase. The remaining 49.9% is in the hands of CEO Demitrios Markakis, who remains in his role. Credicorp Capital sees the transaction implying a price/sales ratio of 0.98x, based on Dicico’s 2012 sales of $384m. It finds this ratio “fair,” coming within the 0.5x-1.2x range of other acquisitions within the country. “Though marginally relevant in terms of valuation today, we believe it was the right step for the company for the long term, granting Falabella the opportunity to build out its Sodimac format with the Brazilian market,” Credicorp says. The shop says Brazil’s home improvement market is about 6x larger than Chile and somewhat fragmented, which presents “interesting” long term growth potential. Dicico booked sales of BRL789m in 2012. Falabella operates department stores, home improvement stores, supermarkets and shopping malls in Chile, Argentina, Peru and Colombia. Falabella made its debut in the international debt market last month, raising $750m in a transaction that included the first-ever global-CLP tranche from a corporate borrower. The Dicico deal is credit neutral for Falabella, Fitch says.