Asda is moving to acquire EG Group’s UK and Ireland (EG UK&I) operations for an enterprise value of £2.27 billion (US$2.8 billion) – accelerating its growth strategy in convenience, omnichannel retail and foodservice. The transaction is expected to close in Q4 2023.
Asda is acquiring over 1,000 of EG UK and Ireland’s food-to-go locations – through an affiliate of its parent company, Bellis Acquisition Company 3 Limited, a wholly-owned subsidiary of the Asda Group.
Combining Asda and EG UK&I will allow Asda to serve an estimated combined base of around 21 million customers each week.
“Natural step” for both businesses
Following the completion of the transaction, Asda plans to invest more than £150 million (US$185 million) within the next three years to integrate the combined business fully.
As part of the deal, the shareholders provide £450 million (US$558.6 million) of additional equity to fund the transaction.
The acquisition is expected to strengthen Asda’s financial profile with the contribution of £195 million (US$241.9 million) EBITDA after rents, with additional P&L synergies of £100 million (US$124 million) expected to be generated over the next three years.
“Shared vision”
Gary Lindsay, managing partner at TDR Capital LLP highlights the nearly £30 billion (US$37.2 billion) in annual revenues from the union of Asda and EG UK&I.
Business people
Combining Asda and EG UK&I is deemed “a natural next step for both businesses.”
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.
“We invest for the long term and this transaction is the realization of a shared vision that began with our investment in EG in 2016,” states Lindsay.
“We are committed to helping Asda reclaim its number two position in UK grocery.”
Acceleration of convenience and foodservice strategy
There have already been 166 EG sites successfully converted to “Asda on the Move.”
This is in addition to Asda’s acquisition of 119 convenience sites with attached PFS from the Co-Op Group and the launch of three stand-alone Asda Express convenience sites in October 2022.
The transaction will also allow Asda to explore opportunities to introduce Leon into its existing estate. Leon was snapped up by the EG Group, in April 2021.
Experienced leadership
Asda co-owner Mohsin Issa will continue to lead the business through its ongoing transformation program and integration of the EG UK&I business.
Asda’s existing leadership team currently includes Michael Gleeson as chief financial officer, who took up his post on May 24.
The business has also commenced a formal search for a new CEO which is expected to take several months.
Asda will hire additional non-executive directors to its board.
The upcoming transaction will be funded by a combination of debt and equity, including £450 million (US$558.4 million) of equity being provided by the shareholders, £770 million (US$955.5 million) of term loan debt, as well as £1.1 billion (US$1.3 billion) from property related transactions.
The transaction does not materially alter Asda’s existing leverage ratios 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 £1.2 billion (US$1.488 billion) of property value, Asda states the transaction will not impact its freehold value. Following the transaction, it shares it will continue to retain a “strong underpin” of freehold assets worth over £9.6 billion (US$11.9 billion).
