Speculation that private equity firm KKR is considering returning its most successful investment, discount chain Dollar General, to the stock market is unsurprising.

The chain is one of the best performing retailers in the US market and presents one of very few opportunities that KKR has of making a substantial return from one of its retail holdings in the current climate.

KKR, known for a string of deals in the retail sector including Alliance Boots, Maxeda and Toys ‘R’ Us, acquired Dollar General for $6.9bn (£4.1bn) in 2007.

It has since installed some top-notch management including chief executive Richard Dreiling – whose pedigree includes US pharmacy retailers Duane Reade and Longs Drugs, as well as Safeway – and division president and chief merchandising officer Todd Vasos, who is former Longs Drugs executive vice-president and chief operating officer.

The new management has moderated the chain’s breakneck expansion, invested in IT and the supply chain, accelerated private-label development and refreshed the in-store experience. As a result, Dollar General like-for-like sales jumped 9 per cent last year, with sales of $10.5bn (£6.24bn) and net earnings in excess of $100m (£59.4m).

KKR, in addition to picking one of very few retailers expected to flourish in a recession, has resisted the temptation to adopt some of the slash and burn cost-control strategies often used by private equity.

Instead, its management team have engineered back office enhancements while at the same time improving merchandising and marketing to attract more middle-income consumers who previously wouldn’t have considered shopping there.

In return, KKR will want to fulfil two main objectives. The first, and most obvious, will be achieving what is anticipated to be a 33 per cent return on its $2.8bn (£1.66bn) equity investment.

The second – to be achieved by KKR acting as an underwriter to the planned IPO – will be bolstering KKR’s credentials as a broader investment bank ahead of its own public debut.

If the Dollar General IPO is a success, it is likely KKR might consider offloading more of its retail assets, including Toys ‘R’ Us.

While investor appetite for Dollar General is set to be healthy, it remains to be seen how attractive Toys ‘R’ Us might prove, especially as it is caught in the middle of Wal-Mart’s turf war with Target in the bloody US toy market.