Private Equity Faces Down Brexit Risk as KKR Looks at Asda

(Bloomberg) -- It would take a brave private equity investor to pounce on a U.K. retailer like Walmart Inc.’s Asda only five weeks before Brexit.

KKR & Co. has teamed up with former Asda Chief Executive Officer Tony De Nunzio for early-stage considerations of a bid for the U.K. supermarket chain, according to a person familiar with the matter. The buyout firm is weighing its options as J Sainsbury Plc’s $9.5 billion deal to take over Asda nears collapse following tougher-than-expected regulatory concerns.

KKR and Asda declined to comment on potential interest, which was earlier reported by the Sunday Times.

British retailers have become more vulnerable amid the rise of e-commerce and the growth of discount retailers Aldi and Lidl. A Brexit-induced decline in the pound has lifted sourcing costs and squeezed profit margins. The risk of a messy divorce from the European Union looms large ahead of the scheduled March 29 departure.

Cutthroat competition and Brexit risks are likely to deter most buyout firms from pursuing Asda unless they can get it for an attractive price, according to advisers who have pitched the deal. Walmart’s best holiday quarter in years, defying a string of bad news in the U.S. retail sector, may lower the chances of a fire sale.

While buyout firms sit on about $1.2 trillion of undeployed capital and are keen to do deals, financiers have been concerned about providing loans to U.K. businesses and it has become more difficult to get sterling-denominated debt to finance acquisitions of British assets, people familiar with the matter said last month.


One of the few big attempts at a leveraged buyout in the U.K. recently was Apollo Global Management’s bid in January to acquire British packaging maker RPC Group Plc, an offer that has been challenged by Berry Global Group, which said it is also considering a bid.

Buyout firms have previously run the ruler over U.K. supermarket chains. In 2007, Sainsbury fended off approaches led by CVC Capital Partners and the Qatar Investment Authority. Sky News reported that they teamed up on another proposal in 2016 that was abandoned after the grocer moved to buy Home Retail Group Plc.

CVC is not currently looking at the grocer as a potential takeover target, people familiar with the firm’s thinking said. A representative for CVC declined to comment.

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