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Netherlands: Action valuation up more than €2 billion in six months

Discount Variety Retail chain Action (owned by PE 3iGroup) does not appear to be affected by inflation or an impending recession. Higher visitor numbers resulted in more turnover and a higher operating result. The British private equity firm 3i Group has therefore put the European retail giant on the books for a considerably higher amount.

At the end of June, 3i's 9.3% stake in Action was worth € 13.8 billion, according to a press release sent out on Thursday. At the end of last year, the investor put a value of € 11.6 billion on his stake.

According to 3i's calculation, all of Action is now worth more than €26 billion. With this, the European retail giant is approaching the market capitalization of Ahold Delhaize, which amounts to just under € 30 billion. The zaandam-based grocer does have a significantly higher turnover, of € 87 billion in 2022. Ahold Delhaize also employs many more people, more than 400,000 against almost 80,000 employees of Action.

High gross margins

"The margins at Action are a lot higher," analyst Fernand de Boer of investment bank Degroof Petercam explains the high valuation of the bargain chain. 'In addition, the growth profile is very different. Action is still going very fast and at Ahold Delhaize it is a lot more difficult to grow because of their dominant position in the markets where they are located.'

British investor 3i Group bought Action in 2011 for a reported €330 million. The private equity firm has already recouped that amount several times in dividends.

3i has never indicated that it wants to sell Action, but a so-called exit is an important part of the private equity model. Analyst De Boer does not easily see a strategic partner as a buyer. "I know almost all the players in Europe and the US when it comes to retail, but I don't see anyone who is going to put such an amount on the table. Walmart could do it, but I don't think they have much need to expand in Europe. A stock exchange listing is more obvious. Or another private equity party, of course.'

300 new additional stores

Action's turnover in the first half of this year amounted to €5.2 billion, an increase of 33% compared to the same period last year. The operating result increased by 52% to €683 million.

The bargain chain continues to open new branches steadily. In the first six months of this year, 90 new stores opened and the plan is to open a total of 300 stores this year. The chain now sells items in 2,300 stores in 11 countries.

Contrast to competition

Action's strong growth is in stark contrast to a number of Dutch competitors. The Hema has had a hard time during the corona pandemic and the company has to pay €106.9 million in deferred taxes over the next five years. Hema stores in France and the United Kingdom have been closed and cooperation with French supermarkets Casino and Franprix has ceased.

Turnover rose from €1.1 billion to €1.3 billion last year. A cost-cutting program should keep the increased store rent, energy bills and personnel costs under control.

Discounter Big Bazar has to close two of its 135 Dutch stores due to rent arrears. In a press release sent earlier this week, the company states that 'market developments within the Dutch retail sector have led to substantial increases in charges.' The group is struggling to bear this burden. The number of visitors is larger than ever, according to the company. "But average spending is under pressure."

Source: FD, 2023


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