DFS in £25m deal to buy Sofology

DFS Furniture has exchanged contracts to buy sofa specialist Sofology for an initial enterprise value of £25m.

It said the acquisition of Sofology - which has a network of 37 stores in the UK - will add a "strong distinctive" brand and business to the group's current portfolio, building on the success of the Dwell and Sofa Workshop acquisitions.

DFS pointed to a near-term potential synergy benefit of around £4m annually, with further longer-term benefits from intensifying use of infrastructure and future revenue synergies expected. The deal is expected to be earnings-accretive in the first full year following the acquisition, with material medium to longer-term value creation anticipated.

The Sofology chief executive and management team will continue to lead the business post completion.

DFS said the initial consideration will be financed through the group's existing cash resources and a new bank facility, as the company has agreed to refinance its existing borrowings, retaining its total facility size and covenants, but converting the current facilities to a new lower-cost five-year £230m revolving credit facility structure.

The new facility, maturing in July 2022, has been arranged with a group of six banks.

Chief executive officer Ian Filby said: "While the UK furniture retail market continues to be very challenging, we remain focused on making strategic progress to strengthen our position in living room furniture. This acquisition represents a clear opportunity for DFS to accelerate our proven strategy of broadening our appeal, generating substantial long-term returns for shareholders underpinned by well-understood synergies.

"Sofology's distinctive market position is a good fit with our existing brands. Jason and his team should be congratulated for creating a fantastic and fast-growing business and I'm looking forward to working with Jason and the team as they continue to grow Sofology as part of the group."

At 1055 BST, DFS shares were up 3.9% to 222.25p.