The money men

I spent two days this week at Retail Week’s Investment Summit, which had a brilliant programme put together by my colleague Ian McGarrigle, including Kingfisher chairman Daniel Bernard, former Asda boss Tony DeNunzio, serial dealmaker John Lovering, Permira’s Martin Clarke and Pets at Home’s chief executive Matt Davies. It was a really enjoyable event, in front of a small but select audience, and the clear sense was that there will be deals done in the early part of next year.

There is clearly a lot of private equity money which the funds need to spend, which was reflected in the flurry of deals earlier in the year such as Hobbycraft, Poundland, DFS and Pets at Home. The second half has been quieter but the feeling was there are some good quality assets quietly available for sale. Bank finance is much harder to get these days - which means that the mega-deals like Boots or even the simply big ones like New Look are going to be very difficult to get away - but for the smaller and mid-sized deals funds are happy to put in bigger equity cheques, in some cases all equity, in order to get the deals done, then refinance the debt afterwards.

We got a great insight into the secrets of running a private equity owned-business successfully, with DeNunzio and Davies particularly impressive. DeNunzio has almost completed the reshaping of Maxeda, having sold off its de Bijenkorf and Hunkemoller divisions in the past fortnight, while Davies is now onto his third PE owner at Pets following KKR’s blockbuster £955m deal earlier this year.

The key lesson was about the quality of people, at all levels of the business. DeNunzio replaced almost all the management in each of the Maxeda businesses with a whole new and largely British team, focussed on reviving the brands and giving them a clear purpose and point of difference. It’s been an extraordinary story of value creation. Davies, meanwhile, talked about the lengths Pets goes to in order to stop its store staff leaving, being as flexible as possible on, for example, their hours to avoid losing their specialist knowledge.

In the heady pre-recession era private equity seemed to be as much about financial engineering as retailing. Nowadays, with deals being done on much lower EBITDA multiples, it’s all about the business, and that’s where strong management and a clear proposition is vital for success. In that respect private equity is not that different from any other type of ownership, just the stakes are higher, and the owners quicker to act if management gets it wrong.