Tesco pension system runs secondaries sale amid pricing challenges

The corporate pension of UK grocery chain Tesco is running a sale of up to £1.5 billion of private equity stakes, sources told Buyouts.

The sale is among the few that have hit the market and appear to be making their way toward a final close this year. The bid/ask spread between buyers and sellers continues to widen as buyers demand discounts to net asset value, and sellers continue to rely on private equity portfolio marks as of the second quarter that are flat or only slightly down compared to public markets.

Because of this, bringing an LP portfolio sale to final close is challenging and many sellers are simply testing the market for pricing, and then pulling back. Buyers have said they have not yet seen “highly motivated” sellers, though there is an expectation, as liquidity dries up, that some limited partners will become desperate.

“I think there’ll be highly motivated sellers next year,” according to an adviser who is not working on the Tesco deal. A challenge could come from the lack of capital for buyers, who like every other GP, are having a more challenging time raising new capital. “It’s a situation where sellers have to beg for buyer attention for deals,” the adviser said.

Tesco has been planning a sale since earlier this year, according to a person with knowledge of the process. The sale is part of Tesco’s long-term de-risking strategy and its rebalancing requirements, the person said.

Campbell Lutyens is working as secondaries adviser on the deal.

Several buyers are exploring the portfolio, sources said, though it doesn’t appear as much as £1.5 billion will trade. Many portfolios that sell in today’s market end up getting cherry-picked by several buyers looking for stakes in specific funds.

“That’s the time we’re in now … bigger deals are getting split up,” the adviser said.

As of 2021, the Tesco PLC Pension Scheme had more than 340,000 members. It was closed to future service benefits in November 2015, according to the 2021 Stewardship Report.

Another portfolio that sold this year was from Dutch pension APG, which was selling a €2 billion portfolio of LP stakes, Buyouts previously reported.

Average pricing for LP buyout portfolios was around 82 to 87 percent of reference date net asset value, according to a quarterly report from PJT Park Hill. LP portfolio sales represented about 44 percent of the estimated $20 billion to $25 billion of total volume in the third quarter, according to the report.

LPs appear to be growing more willing to sell in the tight liquidity environment. Evercore reported in its first-half volume survey that 77 percent of respondents said they sold in GP-led asset-based deals, up from 64 percent in 2021. While asset deals like single and multi-asset continuation fund processes are different, the numbers show increasing appetite among LPs for liquidity in secondaries.