Debenhams backers could make £1.8bn return

CVC Capital Partners, Texas Pacific Group and Merrill Lynch Private Equity are reportedly set to make total returns of £1.8bn through the realisation of a 60% stake in the retailer.

The private equity owners of UK department store Debenhams will reportedly make a £1.8 billion (€2.6 billion; $3.1 billion) return on investment less than two-and-a-half years after taking the company private. The firm is running a dual track IPO/trade sale process. 
 
According to a report in yesterday’s Sunday Times, CVC Capital Partners (CVC), Texas Pacific Group (TPG) and Merrill Lynch Private Equity (MLPE) have been exploring the possibility of selling a stake in Debenhams, including to rival private equity firms.
 
The paper said a research note circulated by Citigroup, which is advising Debenhams alongside Merrill Lynch, Morgan Stanley and Credit Suisse, suggested that the private equity firms plans to sell a 60 percent stake either through a sale or in a flotation – marketing for which is expected to commence in the next fortnight.
 
CVC, TPG and MLPE invested £600 million of equity in the May 2004 take-private of Debenhams, which saw European LBO firm Permira outbid in a £1.9 billion transaction, including debt. Since then, the firms are understood to have returned around £1.3 billion to shareholders through two recapitalisations.
 
The realisation of a 60 percent stake, either through a sale or flotation, is expected to generate proceeds of £800 million, of which £500 million would be used to reduce Debenham’s debt to £1.2 billion, with £300 million going to the private equity firms.
 
CVC, TPG and MLPE are expected to retain a 40 percent stake in the business, with chief executive Rob Templeman, chairman John Lovering and finance director Chris Woodhouse owning a 5 percent share. The firms would not be able to sell any further shares for six months if a flotation was pursued.
 
According to the media reports, Citigroup expects Debenhams to have a market value of between £1.7 billion and £2 billion.