Private equity firm Clayton Dubilier & Rice yesterday revealed its estimated £965m investment in value retailer B&M Bargains as well as Sir Terry Leahy’s appointment as non-executive chairman. Retail Week speaks to co-managing director Simon Arora and analyses the implications of the deal.
Owned by brothers Simon, Bobby and Robin Arora, B&M Bargains is set for stratospheric growth after US investment firm Clayton Dubilier & Rice (CDR) yesterday completed the deal to buy approximately 60% of the business from owners the Arora brothers. The value of the investment has not been disclosed but the business as a whole has been valued at £965m.
B&M co-owner and co-managing director Simon Arora described new partner Clayton Dubilier & Rice as a “perfect fit” as it plans to grow the variety value retailer in Europe through acquisitions.
Arora said: “CD&R is an investment house that has experience of investing in retail and in other sectors allowing the businesses to expand in other countries through acquisitions.”
CD&R has managed the investment of $18bn in 54 companies, representing a total transaction value of $80bn and its investments include car hire giant Hertz.
The sale of B&M Bargains has been rapid, taking just two months. It was hotly followed in the press and has put value retailers in the spotlight for investors.
B&M’s strong growth since the Arora brothers bought the business in 2004 when it had 19 stores, to its current network of over 300 stores, attrated the attention of a large group of US private equityt firms. Sales have also rocketed from £70m in 2004 to £915m for the year to June 30.
Simon Arora says: “We had so much interest in the business because of our success in the UK and it has been a finely balanced decision but we’re very excited to move forward.
“We are a variety retailer but we have an emphasis on general merchandise. That model has got a lot of opportunity in Europe because it doesn’t exist there. On the mainland, they have plenty of discount food retailers but our emphasis is general merchandise. It is a huge opportunity for us and I’m very excited by it.”
Arora is initially targeting a series of “modest, low risk” acquisitions or joint ventures in Europe. “We are not proposing big bang deals. It will be tentative steps first,” he adds.
Indeed, B&M would be the first UK value retailer to open stores in mainland Europe, as so far rival retailers such as Poundworld, Poundland and 99p Stores have only ventured as far as the Republic of Ireland, while Poundstretcher broke the mould earlier this year by opening its first overseas store in Dubai.
Adding further muscle to the business, former Tesco chief executive and retail giant Sir Terry Leahy - “one of the world’s finest retailers,” Arora says - was revealed as its non-executive chairman.
“He will help analyse and prioritise opportunities in Europe. He has a lot of experience of European markets and knowledge of the characteristics that make up the different markets whether it’s the language or customs as obviously a Spanish consumer will be very different to a Dutch consumer,” says Arora.
And he emphasises that there will be no changes to the current management and all directors will stay in their current roles.
The deal is likely to be watched closely, while those investors who lost out in the race for B&M will be keen to plough their money into another value retailer to stop the money burning a hole in their deep pockets.
Poundland may be in obvious choice, as it is already owned by US backer Warburg Pincus and earlier this year appointed former Tesco finance boss Andrew Higginson to develop an overseas strategy, that many saw as a signal in preparation for a sale.
With such a big deal just weeks before the end of 2012, it would certainly appear Christmas has come early for Simon, Bobby and Robin.