TDR Capital’s investment in Asda has already grown 20 times

Asda is turning into a cash cow for private equity buyer TDR Capital as its investment in the supermarket has already grown nearly 20 times

  • TDR Capital has valued its stake in Asda at around €1.7bn (£1.4bn)
  • Private equity said it was nearly 20 times the amount it paid a year ago
  • The Issa brothers and TDR invested less than £800m of equity for the £6.8bn deal

Asda has already become a cash cow on paper for the private equity firm which bought the supermarket with the Blackburn-based Issa brothers just a year ago.

London-based TDR Capital has valued its stake in the grocer at around £1.4 billion (€1.7 billion), or 19.8 times the amount it invested, according to documents seen by the Financial Times.

He said he marked his stake at 19.8 times his initial investment and, although investor sentiment towards the supermarkets has improved since the deal, much of the return has been provided by financial engineering. leverage.

The expected massive return on investment was revealed in a fund marketing document and is based on the fact that TDR and the brothers Mohsin and Zuber Issa mainly used borrowed money to pay Asda.

Massive returns: TDR Capital’s investment in Asda grew nearly 20x in just one year

The Issa brothers and TDR invested less than £800m of combined equity for the £6.8bn deal struck in February 2021, with the rest funded by adding debt to the supermarket chain, according to the report.

TDR invested 334 million euros, but the document even suggests that most of this investment did not come from its own funds – it came from EG Group, the service station business also owned by the capital company. -investment with the Issa brothers.

This implies that TDR may have only invested tens of millions of its own money to pay Asda, according to the FT.

TDR also expects to see its €234 million investment in forecourt owner EG Group grow more than 10 times – it has already increased fivefold since the first investment was made in 2014.

Meanwhile, the private equity firm and the Issa brothers continued to take on debt with Asda.

Although they planned to fund part of the deal by selling Asda’s 323 service stations to EG, the deal was called off in October last year.

To work around the problem, they took on an additional £500m of debt from the supermarket and used £250m of their own cash reserves.

A string of UK companies have been scooped up by private equity firms over the past two years as their cut-price valuations have made them easy targets.

But private equity firms are criticized for often putting healthy companies into debt and pressing them for more profit.

Rival supermarket Morrisons was taken over by US private equity firm Clayton, Dubilier & Rice in October for £7billion.

The deal saddled him with £5.6billion in debt, which he will have to repay, raising fears he may not be able to keep prices down.

Last week, the supermarket was slapped with a “speculative” debt rating by Fitch, which indicates “high vulnerability to default risk”.

The agency warned that Morrisons’ rating would be even lower without the grocer’s strong management team and profitability.

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