After a wretched few days, today finally brought some much-needed certainty for McColl’s 16,000 employees and the 2,000 members of its two pension schemes.  

McColl's fascia

McColl’s went into administration last week

Just 72 hours after tumbling into administration and throwing the prospects of both into serious doubt, the beleaguered convenience store operator has been rescued by supermarket giant Morrisons

But there is a wider significance in the identity of its white knight – a business owned by private-equity giant Clayton, Dubilier & Rice (CD&R).

Under the terms of the deal, all of McColl’s staff will be transferred to Morrisons. It means 16,000 more retail jobs will be backed by private equity, taking the total in the UK to almost half a million. 

According to data released last week by the British Private Equity and Venture Capital Association, private equity and venture capital-backed businesses employed 453,000 retail and wholesale workers last year. That number rises to 1.9 million across all industries, representing 6% of the total UK workforce. 

“Despite their positive contribution, headlines regularly refer to private-equity firms as ‘sharks’ but rarely as the saviours they often are”

Businesses with private equity and venture capital backing delivered £102bn of GDP in 2021, 5% of the country’s total. 

Despite such a positive contribution, headlines regularly refer to private-equity firms as ‘sharks’ but rarely as the saviours they often are.

Articles tell tales of how they have ‘wrought havoc’ on British businesses, but rarely wax lyrical about the growth they have delivered.

Columnists hammer their plans for job cuts or sale-and-leasebacks, but rarely hail their job creation or expansion strategies.   

Private-equity firms are not perfect – far from it. There is plenty to back up the suggestion, for instance, that department store chain Debenhams never recovered from a three-year period of private-equity ownership under TPG, CVC Capital and Merrill Lynch.  

Debenhams

Debenhams owed around £100m when it was taken private in 2003, but when it returned to the stock market its debt had swollen to 10 figures

During that ill-fated spell, Debenhams slashed costs and struck sale-and-leaseback deals on chunks of its store portfolio, agreeing expensive and cumbersome 35-year leases.

The retailer owed around £100m when it was taken private in 2003, but when it returned to the stock market in 2006, its debt pile had swollen into 10 figures.

TPG, CVC Capital and Merrill Lynch, meanwhile, raked in a total of £1.2bn in dividends between them.

Their time in charge of Debenhams was held up – and still is – as the poster child for everything that is wrong with private-equity ownership and ‘quick-flip’ deals that load companies with debt while turning a big profit.  

But isn’t it about time we stopped tarring everyone with that same brush? ‘Buy cheap, pile on debt, extract value’ might be the modus operandi for some, but that is far from characteristic of the way in which all private-equity firms operate.

Just look at what CD&R itself achieved in helping the Arora brothers transform B&M into a value retail giant. The firm acquired a big stake in B&M in early 2013, around 18 months before it launched an IPO in June 2014.  

Under the stewardship of the Arora brothers and chair Sir Terry Leahy, B&M went from strength to strength, breaking into the FTSE 250 in June 2015 and acquiring Heron Foods Group in 2017. 

CD&R sold the last of its shares in 2018, having overseen a period of rapid growth – B&M’s store portfolio doubled to 600 sites during the five years of CD&R’s involvement. But, even then, the headlines focused on the £1bn ‘payday’ the private-equity house had enjoyed, rather than the impact on sales, profits, jobs or the economy. 

Restructuring and refinancing specialist Hilco – one of those firms often labelled a shark or vulture – has funded the impressive turnaround of home and DIY operator Homebase

Hilco bought the business for a nominal £1 in 2018 after previous trade owners Wesfarmers had left the chain on its knees after botching its strategy to rebrand its shops under the Bunnings fascia. 

After suffering a £114.5m loss that year, Homebase swung back into the black in 2019 and, despite the challenges brought on by the coronavirus pandemic, has been back on the front foot, too.   

It has trialled smaller-format Decorate concept stores, launched shop-in-shop tie-ups with Next and Tesco, and struck a deal with THG to accelerate online growth. 

Majestic Wine fascia

Majestic Wine owner Fortress has also thrown capital behind bricks-and-mortar growth,

Majestic Wine owner Fortress has also thrown capital behind bricks-and-mortar growth, shelving the plans of previous boss Rowan Gormley to axe stores, opting instead to open five new stores and refurbish 40 others in the year to March 2021.

The booze specialist registered an £11m improvement in EBITDA during that 12-month period as UK sales jumped 24% to £377m. 

“Private equity is seeing value in retail, hospitality and leisure where the public markets simply aren’t right now”

Fortress has pledged to plough further funds into the retailer this year to fuel its “ambitious store-opening programme”.  

These are far from the only private equity success stories in UK retail. Bridgepoint and KKR proved more than responsible stewards of Pets at Home prior to its float, as did Permira at Dr Martens. 

And, like it or not, private equity is seeing value in retail, hospitality and leisure where the public markets simply aren’t right now. Just look at the share price slumps that businesses as varied as WHSmith, The Hut Group, Asos, Cineworld and Wagamama owner The Restaurant Group have all suffered in the year since physical locations were freed from the clutches of lockdown regulations. 

So isn’t it about time we changed the narrative on private equity’s involvement in retail? 

At a time when many companies – including some UK retail PLCs – are battening down the hatches, pausing store openings and cutting jobs in the face of rampant inflation and economic uncertainty, the preservation of jobs and investment into high streets is to be celebrated. 

There are plenty of private equity firms that deserve credit for doing exactly that.

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