Asda Group has announced the acquisition of EG Group’s UK and Ireland operations for an enterprise value of c.£2.27bn – bringing Asda’s heritage as a consumer champion to even more customers and accelerating its growth strategy in convenience, omni-channel retail and foodservice.
Asda, owned by the Issa brothers, investment funds managed by TDR Capital LLP and Walmart (the “Shareholders”), is acquiring the EG UK and Ireland business consisting of c. 350 petrol filling station (“PFS”) sites and over 1,000 food-to-go locations – through an affiliate of its parent company, Bellis Acquisition Company 3 Limited, a wholly-owned subsidiary of the Asda Group. EG Group will retain approximately 30 PFS sites in the UK for wider group development and which will not form part of the transaction.
The transformational combination of Asda and EG UK&I will allow Asda to better serve a combined base of around 21m customers each week, as well as leveraging Asda’s growing loyalty scheme and bringing together convenience, fuel, GM, grocery, foodservice and omni-channel retailing – under Asda’s heritage in value and ‘customer first’ retail.
Following completion of the transaction, Asda plans to invest more than £150m within the next three years to fully integrate the combined business. As part of the transaction the shareholders are providing c. £450m of additional equity to fund the transaction.
The acquisition will strengthen Asda’s financial profile with the contribution of c. £195m EBITDA after rents, with additional P&L synergies of c. £100m expected to be generated over the next three years. These synergies mainly arise through economies of scale of the combined entity, higher volumes and cross-selling opportunities from a large and highly complementary customer base. Asda also expects to realise over £100m of working capital benefits as a result of its enlarged scale.
The combination of Asda and EG UK&I is a natural next step for both businesses. The enlarged group will be better placed to benefit from highly attractive structural drivers behind the convenience and foodservice markets, estimated by Euromonitor to be worth c. £40bn and c. £62bn, respectively, in 2022 Four key drivers are:
- The rise of local shopping as consumers adapt to hybrid work patterns
- Consumers shopping for immediate consumption and same day meals, topping up their weekly shops
- Convenience stores being located at the heart of communities, offering a range of value-added services that drive footfall
- Consumers increasingly prioritising food to go and takeaway options due to busy lifestyles
Stuart Rose, Chair of Asda, said: “Asda’s acquisition of EG UK and Ireland will create a consumer champion like the UK has never seen. Throughout my career in retail – one thing has always been true, that meeting the evolving needs of customers is the route to growth.
“This transaction is all about driving growth by bringing Asda’s heritage in value to even more communities and accelerating the growth of its convenience retail business.”
Mohsin Issa, co-owner of Asda, said:
“Asda is committed to saving customers precious time and money across their shopping baskets and on the forecourt. The combination of Asda and EG UK&I will be positive news for motorists, as we will be able to bring Asda’s highly competitive fuel offer to even more customers.
“I would like to sincerely thank all colleagues at both businesses for their ongoing efforts to serve our customers during tough economic times, and I look forward to welcoming our new colleagues from EG UK & I and expanding the Asda family further.”
Gary Lindsay, Managing Partner at TDR Capital LLP, said: “The combination of Asda and EG UK&I creates a convenience and food retailing champion, with nearly £30 billion in annual revenues. The two businesses are highly complementary, bringing together Asda’s traditional focus on mid-to-large sized supermarkets and EG UK&I’s on convenience retail, foodservice and fuel.
“At TDR Capital we’re proud to play our part in bringing the businesses together. We invest for the long term and this transaction is the realisation of a shared vision which began with our investment in EG in 2016. We are committed to help Asda reclaim its number two position in UK grocery, strengthening its position as a much-loved British brand that delivers great value to millions of customers every week.”
The transaction is expected to close in Q4 2023.
Bringing Asda value in fuel and groceries to more communities
Under the new structure, Asda is committed to the lowest supermarket fuel prices – bringing its highly competitive fuel offer to many more customers.
Acceleration of convenience strategy
Asda’s acquisition of EG UK&I will open up significant growth opportunities in the growing convenience and foodservice markets – building on the successful strategic building blocks already in place.
There have already been 166 EG sites successfully converted to ‘Asda on the Move’ giving the business confidence in the conversion strategy integral to the expected synergies of the combination. As part of the transaction, we intend to bring all acquired EG UK&I sites under the Asda fascia.
This is in addition to Asda’s acquisition of 119 convenience sites with attached PFS from the Co-Op Group and successful launch of three stand-alone Asda Express convenience sites since October 2022.
Integration of foodservice
EG UK and Ireland is a pioneer in foodservice and has a successful blueprint with popular brands. The transaction will allow Asda to explore opportunities to introduce Leon into its existing estate, for example.
Experienced leadership with vision for long term
Asda co-owner Mohsin Issa will continue to lead the business through its ongoing transformation programme and integration of the EG UK&I business.
Mohsin will continue to be supported by Asda’s existing strong leadership team, which includes Michael Gleeson as Chief Financial Officer, who took up his post on 24th May.
The business has also commenced a formal search of global talent to identify a new CEO of Asda with the relevant skills required to lead and grow Asda into the future. It is expected this search process will take several months.
Alongside existing board members, Asda will hire additional non-executive directors to its Board, reflecting its commitment to further strengthening its governance systems, structure and processes.
The transaction will be funded by a combination of debt and equity, including c. £450m of equity being provided by the shareholders, £770m of term loan debt, as well as c. £1.1bn from property related transactions. The transaction does not alter Asda’s existing leverage ratios materially and results in a pro forma net leverage of approximately 4.3 times after finance leases and ground rent liabilities. As a result of EG UK&I being almost entirely a freehold estate with c. £1.2bn of property value, the transaction will have no impact on Asda’s freehold value. It will continue to retain a strong underpin of freehold assets worth over £9.6bn, following the transaction.
Lazard has provided an independent report on the financial aspects of the transaction to the ASDA Board of Directors who have approved the transaction.
Strong Q1 financial performance
Asda also today reported strong like-for-like sales growth and market share gains from the traditional ‘big four’ competitors, as its investments in value and quality continue to resonate with customers. Like-for like sales increased by 7.8% in the three months to the end of March compared with the previous year, while total revenues excluding fuel increased by 8% to £5.0bn.
