PE (private equity) funding and the acquisition of businesses is becoming more commonplace in the UK. In the first half of 2021, PE funded 124 deals for UK companies, worth £41.5bn, an increase of 60% since 2019.
PE firms raise money from investors (e.g. pension funds, insurance companies, sovereign wealth funds and ultra-high wealth individuals) for the purpose of purchasing businesses. The aim is then to improve performance, or ‘turn them around’, with the objective of selling them within a three to five year timescale, at a profit. At present, the PE industry views British firms as cheap, due to the underperformance of the UK stock market.
The PE industry is currently sitting on a record $1.7tn of committed but unallocated capital that these firms have ready to invest. And the UK is seen as a major target for acquisitions.
Supermarket acquisitions
Our briefing on private equity and supermarket acquisitions (PDF file, 252KB) discusses the purchase and potential implications of the acquisition of Wm Morrison Group by PE group Clayton Dubilier & Rice (CD&R). It also describes in detail exactly what PE funding is and how it operates. We also discuss investments made by other PE firms in the UK food industry. An example is Exponent, a UK-based firm that has invested in GÜ, Meadow Foods and Quorn.
Asda has been subject to a takeover by PE. The Issa brothers, who co-founded Euro Garages, a chain of petrol filling stations and convenience stores that operate in Europe, the United States and Australia, bought Asda in October 2020, along with PE company TDR Capital in a debt-fuelled £6.8bn buyout.
There are now just two listed supermarkets remaining – Sainsbury’s and Tesco – with both believed to be potential private equity targets in the future.
Morrisons
The battle for the acquisition of Morrisons in 2021 was ultimately won by US PE firm Clayton, Dubilier & Rice for £7bn. Our briefing discusses the strengths and weaknesses of the deal for Morrisons, with its 497 stores and 11m customers per week.
Morrisons has been losing market share to the discount supermarkets over the past few years. At present, it’s not about PE making money from Morrisons, but showing it can invest enough to stop it being left behind in this highly competitive market. Our briefing discusses the commitment Clayton, Dubilier & Rice has made so far for farmers supplying Morrisons.