Since Fortress’s £6.3bn offer for Morrisons was recommended to shareholders on Saturday, the private investment giant has become the favourite to take over the grocer. Retail Week looks at what kind of owner Fortress would likely be. 

Morrisons Watford

Fortress has been keen to position itself as a benevolent owner, interested in long-term growth as opposed to asset stripping for a quick buck.

Morrisons chair Andy Higginson also backed Fortress as a suitable steward of the retailer’s traditions and culture. 

Fortess is no stranger to UK retail and is best known in this country for taking over Majestic Wine in 2019. However, before acquiring the wine specialist, Fortress had more of a reputation, particularly in America, of seeking out and investing in distressed businesses.

So what kind of owner would Fortress be? 

Solid foundations

The private investment was founded in 1998 and was acquired by Japanese technology investment giant SoftBank in a $3.3bn (£2.28bn) deal in 2017. 

It manages some $53.1bn worth of assets directly.

Majestic store

Retailers in the UK may best know Fortress from its 2019 acquisition of Majestic Wine for £100m. It bought the wine company and was instrumental in bringing chief executive John Colley back to the brand, and pushing ahead with the turnaround of the business, which had suffered following its sale to Naked Wines.

In June 2019, the retailer reported a loss for the financial year. By July 2020, Majestic said that revenues had quadrupled during the pandemic, and was targeting 10% sales growth over the next five years. 

Prior to Fortress’ acquisition of Majestic Wine, the retailer had been weighing up the prospect of slashing its workforce by a third, and had been looking at selling freeholds and closing stores across its portfolio. 

In 2020 during the pandemic, Majestic opened three new stores, has plans to open more stores in 2021 and retained the bulk of staff at risk of redundancy under previous management. 

No pressure from Fortress to cut costs

Sources close to Majestic said Fortress have been happy to invest in the business and let the leadership team drive the strategy, as long as they have been kept informed of what was happening and whether it was working. 

They added that Fortress had little involvement in the day-to-day running of the business and never put any pressure on senior leadership to slash costs. 

In another nod to what kind of owners Fortress may be for Morrisons, the private equity firm acquired US petrol forecourt and convenience business United Pacific in 2013.

At the time of the acquisition the chain had around 150 stations across its portfolio and generated revenues of around $1.3bn. United Pacific now has over 500 petrol stations and convenience stores under ownership, generating revenues over $3bn. 

Through its acquisition of United Pacific, Fortress also has a stake in Couche-Tard owned forecourt and convenience retail specialist Circle K, which is valued at over $450m, according to Pitchbook data. 

Property deals

Morrisons store frontage

Prior to its takeover by Soft Bank in 2017, Fortress was known for investing predominantly in property through sales and lease backs, which have sometimes been controversial in retail - Debenhams is frequently cited as an instance where the approach ultimately saddled the business with higher costs.

Fortress has done this in the UK, when it acquired a portfolio of 76 Marks & Spencer stores for £450m in 2016. 

However it was more active in sale and leasebacks in the United States, having snapped up 71 stores for $720m from Albertsons-Safeways through an affiliate CF Albert.

Between 2017 and 2019 alone, under the majority ownership of another private equity firm Cerberus, Albertsons initiated several large-scale sale and leaseback transactions on over 120 stores and 7 distribution centres worth $2.6bn.

While Fortress has committed to no “material” sale and leasebacks of Morrisons freehold store estate, it has not given the same guarantee for its distribution centres or 19 food manufacturing warehouses.

“Fortress doesn’t seem to be proposing any aggressive change”

The private equity group also snapped up 53 supermarkets for $41.5m from former Tesco backed Fresh & Easy in the US in 2013. Fortress snapped the property up while Fresh & Easy was going through its first bankruptcy and before it was bought from Tesco by Yucaipa Companies. 

In a bid to perhaps distance itself from its property dealing past, Fortress has put a lot more equity into the bid upfront than in previous private equity grocery takeovers, such as the acquisition of big four competitor Asda by the Issa brothers and TDR Capital earlier this year. Fortress and its partners are putting up £3bn in equity to finance the deal directly, where as TDR Capital and the Issas stumped up £750m in their £6.8bn Asda bid.

Opening salvo or the final shots fired?

With the PR offensive in full swing, Fortress has said all the right things about its intentions. It is also no guarentee that the £6.3bn recommended offer will be the last shot fired, or merely an opening salvo, in the private equity fight to buy Morrisons

Financial analysts have backed the bid, with Exane equity analyst Andrew Gwynn saying: “Fortress doesn’t seem to be proposing any aggressive change, with a focus on simply empowering the management team to deliver on their longer-term strategy.”

This tallies with the picture painted of Fortress by sources close to Majestic which, when combined with the rapid growth seen at United Pacific, shows the private equity firm as an engaged owner that is willing to put a lot of faith in senior management, but won’t hesitate to invest and seize opportunities to grow. 

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