Sainsbury’s and Tesco have been singled out as the next targets for buyout firms after the Morrisons deal.
US investment company Fortress – which was beaten to the Morrisons takeover by private equity Clayton, Dubilier & Rice (CD&R) at auction – has indicated it is interested in other UK acquisitions.
Joshua Pack, financier at Fortress, said: “The UK remains a very attractive investment environment from many perspectives and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value.”
Shares in Sainsbury’s and Tescos rose on Monday as analysts pegged them as the next retail targets for takeovers.
Neil Shah, head of research at equity research firm Edison Group said the Morrisons deal highlighted “the general trend of the UK equity market being undervalued versus the rest of world.”
“The UK is currently an environment where the markets and legal structures mean it is a friendly place to make bids – execution risks around deals are low,” Shah added.
“The thing about the UK supermarket is that it is a money spinner and though competition is back on the menu after the discounters came off the bench that they’d rested on during the Covid crisis, there is a certain certainty about the business model that may inspire a second or even a third glance,” Danni Hewson, AJ Bell financial analyst, said.
“While most of the money seems to favour Sainsbury as the most likely target there is much speculation that those private equity boffins might well be pawing over Tesco’s receipts,” Hewson said.
Alongside Fortress, global investment management firm Carlyle may also consider switching category after it lost out on the battle for pharmaceuticals company Vectura, it was rumoured.
Bryan Roberts, retail consultant at Shopfloor Insights, questioned what approach private equity firms would take with Sainsbury’s and Tesco. “They have both really embarked on quite extensive cost cutting measures already. You wonder what a fresh approach might be,” he added.
A potential bidder for either of the supermarkets may look at property as a way to generate value, Roberts explained. “Increasing profitability is the real challenge, it’s a brutally competitive market, with historically low margins.”