Asda’s private equity co-owner has reportedly valued its stake in the UK’s third largest supermarket at almost 20 times the amount it paid last year.
According to a report in The Financial Times, TDR Capital – which bought the firm in partnership with the billionaire Issa brothers – has informed investors it now places its stake in Asda at 19.8 times the orginal investment.
Both TDR and the Issa brothers used a small amount of their own funds in the £6.8bn acquisition. They chose to fund the rest by selling some of the supermarket’s assets and allowing it to acquire significant amounts of debt.
Documents seen by the Financial Times suggest that TDR’s stake is now valued at £1.4bn, which suggests that the firm initially put forward just tens of millions of euros.
Between them, the the Issa brothers and TDR put in less than £800m of equity for the £6.8bn deal, a lower figure than the average buyout. Their returns are far greater than average; figures from Bain & Co. reveal that private equity takeovers of consumer businesses typically make around 1.8 times their original investment.
What’s more, documents produced by TDR were reported to imply that most of its €334mn contribution came from EG Group, a petrol forecourt operator, owned by TDR and the Issas.
Asda’s core earnings rose by 22.5% last year to £1.3bn, though part of that improvement came from a cut in operating costs caused by the pandemic.
Valuing Asda at 9.1 times core earnings would make it worth £11.8bn, including debt. This is more than 1.7 times its £6.8bn value when the Issas and TDR acquired it.