UK retailers top private equity firms’ shopping lists

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UK retailers top private equity firms’ shopping lists

At the beginning of the month, the bidding war for Morrison’s finally came to an end after Clayton, Dubilier & Rice (CD&R) outbid rival private equity giant Fortress with an offer of 285p per share. Britain’s fourth-largest supermarket chain, with nearly 500 stores had long been the subject of an extended £7 billion bidding war between the American firms, as foreign investors continue to swoop in on leading UK retailers.

British companies have become well acquainted with private equity investors awash with foreign cash. Already this year, 39 bids to take British companies private — just two shy of the total for 2020 — have been completed or proposed, half of them by private equity firms.

Throughout the pandemic the UK has remained a very attractive investment environment – a weak pound and low interest rates caused by years of Brexit uncertainty, combined with bid-friendly markets and legal structures mean UK companies look more enticing than ever.

Among the wider real estate deals this year, Blackstone, the world’s largest private equity firm, acquired logistics and housing investment company, St. Modwen, while KKR bought infrastructure firm, John Laing. Blackstone is now eyeing up assets in London – despite Brexit it still sees Britain as a gateway to Europe, investing nearly $20 billion in the country.

Morrisons follows Asda as the second major supermarket to fall into private equity hands this year as investors are attracted by firms’ strong cashflow, property holdings and the relative value offered by UK public markets. Boots, Pizza Express, Byron and Gail’s have all been sold off to private equity firms in recent years and in April, the Issa brothers snapped up the “healthy fast food” chain Leon for £100m. Morrisons is particularly attractive because, unusually among supermarkets, it owns much of its supply chain – meaning it has more assets for a future buyer to sell off.

The flurry of activity has raised fears that British supermarkets will be stripped of their assets and laden with debt. Debenhams shuttering its stores for good has served as a stark reminder of the damaging effect that some foreign private equity funds can have on the British high-street. In the 3 years the American funds owned Debenhams, they managed to saddle it with more than £1 billion in debt.

CD&R’s acquisition has already helped to buoy share valuations across UK supermarket chains in recent months, with speculation brewing about Sainsbury’s and Tesco being singled out as the next targets for buyout firms. Although nothing has been confirmed, it’s clear that if interest rates remain low and there is plenty of liquidity available, for better or for worse, the UK will continue to attract pivotal interest from global private equity firms. 

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