Schroder Ventures bags Homebase

Just three days before Christmas, Schroder Ventures acquired a 71.2 per cent shareholding in Homebase, in a deal which valued the DIY chain at £750m.

Sainsbury is retaining a 17.8 per cent and management will subscribe to 11 per cent shareholding. Approximately £1bn in equity, debt and sale and leaseback finance was arranged to cover the purchase price, transaction expenses and to fund further growth of the business.

Sainsbury also plans to sell 28 development sites to Kingfisher, owner of the B&Q home improvements chain. The sale will raise a further £219m for Sainsbury, according to the Financial Times.

John Lovering, chairman of the management team backed by Schroder Ventures, said: “Homebase is a well positioned retail business operating in a growth market. It has a great property portfolio, a fine brand, strong own label ranges, and 5 million loyal ‘Spend and Save’ customers.”

The Homebase sale was originally expected to generate about £1bn for Sainsbury but a price of between £700 and £800m became more likely as prospective investors began to assess the company in detail. A number of private equity houses had been in the running although last month, Duke Street Capital pulled out of the race. The reason was rumoured to be that Homebase needed too much investment. Private equity firm KKR also withdrew its bid because it was unwilling to pay the then asking price.

Many are now keenly watching to see how Schroder Ventures intends to grow the business. Statements issued at the time of the transaction talked of investing in new product development, new information systems and refurbishing existing stores. The challenge would seem to be making these kind of measures offer the returns investors will be expecting.