Warburg books 4.5x on Poundland

With its partial exit of the discount retailer via a £750m IPO, Warburg has generated an IRR of more than 50%.

Warburg Pincus has sold part of its stake in UK-based discount retailer Poundland through a listing on the London Stock Exchange, which valued the company at £750 million.

The partial divestment has netted Warburg a 4.5x return and an IRR of more than 50 percent, according to a market source. Warburg declined to comment on returns.

The shares priced this morning at 300p. By 10.15am they were trading at 362.50p, up 21 percent.

Following the IPO, Warburg retains 37.9 percent while Poundland directors and members of senior management own 10.2 percent. The offering is expected to raise gross proceeds of £375 million, but could raise £431 million if Warburg decides to use the over-allotment option.

“The combination of a track record of delivering strong, profitable growth underpinned by a well-invested infrastructure and a compelling growth story has attracted overwhelming support for Poundland’s IPO,” Jim McCarthy, chief executive officer of Poundland Group said in the statement.

“We identified the European discount market as an attractive and growing industry. We are pleased with the tremendous growth that management and employees have delivered to date and look forward to continued growth in both the UK and internationally,” Paul Best, a managing director of Warburg Pincus, told Private Equity International in an email.

Warburg bought a 76 percent stake in Poundland from Advent International in May 2010, investing £200 million in an all-equity deal via Warburg Pincus Private Equity X, a $15 billion global fund.

Under Warburg’s ownership, Poundland has enjoyed an annual compound growth rate of 17 percent. Revenues grew to £880.5 million in the 2013 financial year, up from £641.5 million in 2011. In September 2011, Warburg supported the company’s entry into the Irish market with the launch of Dealz, where Poundland sells the majority of its products for €1.49, compared to £1 in the UK.

Following the announcement of the IPO last month, Poundland also said it had bolstered its board of directors by appointing a few retail veterans. They included Tea Colaianni, group human resources director at Merlin Entertainments, the entertainment group that The Blackstone Group partially exited last year in a £.3.2 billion IPO – the largest sponsor-backed IPO in Europe in 2013, according to CMBOR.

Pet products retailer Pets at Home, which is owned by Kohlberg Kravis Roberts, also went public on Wednesday. The IPO valued the company at £1.2 billion, according to a statement. Shares priced this morning at 245 pence, and at 10.25am GMT were trading at 243.5 pence, down 0.6 percent. KKR will receive gross proceeds of £210 million following the IPO, and will retain 46.2 percent of the company.

The Poundland and Pets at Home listings are further examples of the recovery of the European IPO market as an exit route for private equity. ISS, a Danish facility services company owned by EQT Partners and Goldman Sachs Capital Partners, also recently announced plans to go public on the NASDAQ OMX Copenhagen stock exchange.