German e-tail giant Zalando announced on Wednesday that it’s aiming “to become your most relevant fashion e-commerce company” and one way it wants to do that is by taking over Otto Group-controlled e-tailer peer About You. That’s massive news and it’s no surprise that its release sent About You shares soaring almost 80% to get close to the purchase price and to value About You at over €1 billion.

Zalando said Otto’s board has “welcomed the announcement of a partnership between two of Europe’s leading fashion e-commerce companies”.

Quite how other e-tailers — such as the UK’s ASOS and Boohoo — will feel about the combination to create a much stronger pan-European business remains to be seen, of course.

The planned offer of €6.50 per share represents a premium of 12% to the target price of €5.80 analysts had for the shares and a premium of 107% to About You’s three-month average share price on 10 December.

Major shareholders

So who exactly is involved? Otto Group has a 37% stake in About You with key player Benjamin Otto holding around 8%. Other shareholders include Anders Holch Povlsen’s Heartland vehicle (which readers may remember from its purchase of a majority stake in ASOS’s Topshop a few months ago) and About You’s current management. 

Between them, these major shareholders control 73% of the shares and all are in support of the deal.

Zalando and About You said the plans post-merger include, in B2C, the group driving a dual-brand strategy, “offering distinct shopping experiences to better serve the specific needs of customers and partners”.

In B2B, About You’s Scayle unit “complements Zalando’s e-commerce operating system Zeos, to help enable brands and retailers to manage their multi-channel business across Europe within a unified platform featuring logistics, software and service offerings”.

They added that the transaction “unlocks significant value-creation opportunities in areas such as B2B, logistics, payments and commercial collaboration. [And] in the longer term, Zalando targets significant Group EBIT synergies of around €100 million per annum”.

We’re told the combination also “brings together two founder-led teams with a strong cultural fit and complementary capabilities”. About You’s founders/management board members Sebastian Betz, Tarek Müller and Hannes Wiese will “continue their successful work in their current roles as part of the combined group”.

Zalando said the deal will combine “the complementary strengths of these two excellently positioned and established online players and the planned dual-brand strategy is expected to significantly increase their presence in European markets”. 

From the perspective of Otto Group as About You’s majority shareholder, “the proposed merger offers a unique opportunity for sustainable growth and a successful future for [the brand]”.

“Redefining fashion and lifestyle shopping by creating the best possible experience for customers and partners has always driven both our teams. I’m excited about how together we’ll be able to cover a larger share of the fashion and lifestyle market,” said Robert Gentz, co-CEO and co-founder of Zalando.

Ambitious growth aims

“Underpinning management’s conviction in the value creation of this transaction”, Zalando said it’s confirming its medium-term outlook also for the combined group, which is expected to grow GMV and revenue until 2028 at a five-year compound annual growth rate of between 5% and 10%. 

The combined company expects an adjusted EBIT margin in 2028 of around 6%-8%, “yielding a significant increase in absolute profit by creating a combined group at a larger scale. Together, Zalando and About You aim to cover a larger share of the €450 billion European fashion market in the long term than previously targeted”.

Since 2018, About You has been “managed as an investment company within [Otto’s] corporate portfolio and achieved the status of Hamburg’s first unicorn that same year, referring to unlisted digital start-ups valued at over one billion US dollars”. The company has been listed on the Frankfurt Stock Exchange since 2021. 
 

Sluggish share price

In their joint statement, the companies also said that “the executive board and shareholders of the Otto Group are convinced of About You’s business model. The company’s development – particularly in the ongoing fiscal year 2024/25 – is very positive, as evidenced by growing revenues and a positive EBITDA in an extremely competitive market environment. 

“However, this strong performance has unfortunately not been reflected in the stock price for years. The planned strategic transaction, aimed at creating a strong European partnership, offers significant opportunities for both online fashion retailers as well as their customers and partners. With the planned dual-brand strategy, About You and Zalando will also expand their offerings to consumers and enhance their presence in pan-European markets”.

Otto Group added that the “planned merger into a leading fashion and lifestyle e-commerce player presents an excellent and reliable outlook for shareholders, partners, and employees. At the same time… [we have] consciously decided against further involvement in the new company. It has been and remains important for the Otto Group to maintain relevant influence in joint ventures within its core business, which would not be possible in the new configuration”.

With funds therefore freed up, Otto “aims to further strengthen its successful portfolio and especially advance the scaling of OTTO, its strategically relevant brands, and the financial services segment. This positions the globally operating e-commerce and service group well in a still very challenging market environment for the future”.