B&Q performance sparks bid talk

Permira and Apax have been tipped as potential bidders for UK home improvements retailer B&Q. Rumours of a buyout bid have been circulating ever since parent Kingfisher issued a profits warning for the chain at the end of April.

If B&Q were to be sold in its entirety, the deal would rank as one of the largest European buyouts to-date. The mooted valuation is £7bn (€10.2bn), which would put the deal just behind Auna, the Spanish telecom that has received a €12.5bn buyout bid from a group led by KKR.

B&Q was hit by a tough start to the year for the retail sector. Like-for-like Q1sales are expected to have fallen by 6%, equating to a drop in retail profit of 15%.

Permira has a successful track record in the DIY retailing sector. It bought the Homebase chain from Sainsbury in 2001 for £750m, then exited just a year later with the £900m sale of Homebase to GUS. Under Permira’s ownership, Homebase achieved industry leading like-for-like sales growth of about 16% and a three-fold increase in trading profit.

The business was strategically repositioned to differentiate it from its DIY competitors, including B&Q.

A spokesman for Kingfisher did not deny that interested parties might be looking at B&Q’s books. But he said that the company’s size and scale of operations would make it a different prospect from Homebase.

“As far as B&Q is concerned it is business as usual,” he said.

The uncertainty in the retail sector will require any suitors to complete thorough due diligence. There might also be a knock-on effect from Apax walking away from Littlewood’s after that company had opened its books.

Financing could also be challenging for a deal in the near term. The recent loss of confidence in the high-yield market may impact liquidity prospects.

Home Depot, the world’s biggest DIY retailer, is meanwhile reported to be in talks about a takeover deal with B&Q’s owner, Kingfisher, if the British chain is willing to dispose of its French business. Kingfisher took full control of Castorama in France in 2002.