AO World agrees £10m acquisition of MusicMagpie

AO World has agreed to buy MusicMagpie in a deal worth almost £10m, in an effort to expand its mobile and consumer technology offering.

AO World will pay MusicMagpie investors around 9.1 pence for each share they own, a 58 per cent premium to the company’s closing share price on Tuesday.

The appliance retailer said MusicMagpie is a “leading, high-quality operator” in the second-hand electronics sector, with a “strong technology stack” and a “deep and active customer base.”

It believes the acquisition will help offset financial risks posed by the growing shift toward “sustainability and repair” in the consumer technology market.

AO World also said the deal, which it expects to finalize in the first quarter of next year, will strengthen exchange options for its customers.

MusicMagpie has hundreds of SMARTDrop kiosks set up in shopping centers and Asda stores across the UK, where Brits can drop off their old phone in exchange for cash.

John Roberts, CEO and founder of AO, said: “To achieve our strategic ambition to become the destination for electrical products, it is crucial that AO enhances its consumer technology offering.

“A top-notch exchange service will be essential, and musicMagpie represents an important enabler to unlocking value through our reverse supply chain.”

MusicMagpie started life reselling CDs and DVDs after Walter Gleeson and Steve Oliver set it up in a Stockport garage in 2007.

It received a major boost when MoneySavingExpert founder Martin Lewis recommended the company on television.

A £10m cash injection from private equity firm LDC in 2011 helped the group expand into North America, where it trades under the name Decluttr.

The company now resells everything from books to clothing, laptops, smartwatches and game consoles, and also offers subscription services that allow customers to rent electronics.

However, since listing on the AIM junior market in April 2021, MusicMagpie’s value has plummeted from around £208 million to just over £9 million.

It has struggled to grow revenue due to the easing of Covid-related restrictions, postal strikes and consumer inflation pressures.

At the same time, higher costs of sourcing goods and greater competition in the used technology market have affected the company’s profitability.

Last year, MusicMagpie bosses decided the company would need a financial partner to help expand its rental service due to a capital shortage that was reducing its ability to invest.

Aurelius, owner of BT Group and Body Shop, considered buying the company last year but ultimately abandoned a potential deal.

AO World has also faced challenges in recent years due to cost of living issues and the end of pandemic restrictions.

The Bolton-based group was forced to make major redundancies, close its German business and eliminate numerous unprofitable product lines.

But while total revenues remain well below lockdown-era highs, profitability has improved significantly: its adjusted pre-tax profits soared 186 per cent to £34.3m for the year which ended in March.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the result showed the firm had “recovered its mojo”.

He added: “Gaining a greater presence in the mobile market has been a big part of the plan, and the refreshed models offer new avenues of business, so it wants to add Music Magpie to its nest.”

MusicMagpie shares jumped 47.8 per cent to 8.5p on Wednesday morning, while AO World shares they remained stable at 109.6p.

=