Monday, 31 December 2012

Advent outbids Mid Europa and acquires EKO Holding

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
"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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