The battle for
control of Polish retailer EKO Holding that played out between two
private equity giants over the past weeks will go down in history as one
of the most exciting bidding wars the Warsaw Stock Exchange has ever
seen.
Advent International Corporation
placed a buyout bid on the Warsaw-listed EKO Holding at the beginning
of September, offering PLN 4.1 per share. Although the fund had struck a
preliminary deal with the Gradecki family, who agreed to sell Advent
their 56% stake in the retailer, Polish pension funds (OFE Allianz, OFE MetLife Amplico, and PZU) were not that eager to part with their minority stakes in EKO Holding at that low a price.
The funds had a good reason to be iffy about the initial bid, as another major private equity player, Mid Europa Partners had
joined the race, forcing Advent to raise their bid to PLN 4.7 and then
PLN 5.6 per share. Although at that point the Gradeckis sold their
shares in EKO Holding to Advent, Mid Europa did not budge and offered to
purchase the outstanding stock at PLN 6.35. It took another counterbid
from Advent – PLN 7 per share – to send Mid Europa packing and pension
funds selling.
In
short, a company that Advent priced at PLN 199m in early September
gained more than PLN 140m in value in merely two months. Following
closing of their final tender offer on 29 October, Advent held close to
98% of shares in EKO Holding with plans for a subsequent squeeze-out and
delisting of the company.
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Now that Advent has added EKO Holding to their Polish portfolio, questions arise about their plans for the supermarket chain.
"The
market environment is challenging, particularly for independent
groceries, the so-called mom-and-pop stores. The sector continues to
consolidate, which on the one hand results in independent outlets losing
their market share, and on the other – bodes well for supermarkets, due
to shifting consumer preferences. Our goal is to focus on restructuring
the business and expanding the chain via organic growth and
acquisitions. We believe EKO represents a very good platform for such
undertakings," Paweł Ryszkiewicz, Director at Advent International tells
news2biz.
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EKO Holding's key asset is its chain of 305 EKO
supermarkets. Image: EKO Holding
supermarkets. Image: EKO Holding
"In
our opinion time is of the essence in a business environment as
competitive as Poland's retail sector and therefore we have already
appointed a new CEO and CFO for the company."
Focus on core business
EKO
Holding concentrates its activity on a supermarket chain EKO which
includes 305 EKO stores. Its other assets include ca. 800 Rabat
franchise stores and 165 Jasmin franchise drugstores. The group also
owns Polska Grupa Drogeryjna (PGD), a wholesaler of
household chemicals and cosmetics. Last year EKO Holding boosted its
turnover by a fifth, reaching PLN 1.5bn, with an EBIDTA of PLN 28m and
net profit of PLN 3m.
Asked about their plans for the franchise chains Rabat and Jasmin and wholesaler PGD, Mr. Ryszkiewicz replies:
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"At
Advent, we strongly believe in a focused business model and therefore
we have been saying from the start that we do not wish to invest in
non-core assets such as the businesses you've mentioned. EKO Group today
consists of more than twenty companies active in a number of different
and diverging markets. EKO needs to focus on driving the scale and
capability of its core supermarket business. Our strategy to simplify
the company's structure, dispose of non-core assets and to ensure that
the management's full attention and the company's resources are
dedicated to competing in this extremely challenging market."
As
part of the investment, Advent International is bringing to EKO Holding
its considerable expertise and experience in the retail sector
internationally. The firm has invested in 10 companies in the sector
over the last five years alone. Relevant investments include Serta & Simmons Bedding, DFS, Five Below, Takko, Stokomani, and Poundland.
Founded
in 1984, Advent International is one of the world's leading global
buyout firms, with offices in 16 countries on four continents and a
global team of over 160 investment professionals. The firm focuses on
international buyouts, strategic repositioning opportunities and growth
buyouts in five core sectors. Since inception, Advent has raised EUR
19.4bn in private equity capital and, through its buyout programs, has
completed over 270 transactions in 35 countries. Since inception, the
Advent funds completed 149 IPOs on 27 stock exchanges around the globe.
"Our
strategy relies on long-term growth and active portfolio management.
Usually we assume that 3-7 years should suffice to substantially
increase the value of a business although of course there have been
exceptions from the rule. As for EKO Holding, we are currently focusing
on value creation, not exit from the project."
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