CVC Capital Partners Wants to Acquire Studenac

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CVC Capital Partners is interested in acquiring Studenac. This information has been confirmed to us by two sources familiar with the sale of the retail chain, which was purchased six years ago from Josip Milavić by a Polish private equity fund managed by Enterprise Investors.

As expected, CVC Capital Partners did not want to confirm that they are in negotiations to purchase Studenac, and the same response came from Mid Europa Partners, which is also mentioned these days as a potential buyer of the Croatian retail chain.

 

Based in Luxembourg, CVC is one of the most recognized names in the venture capital industry. It currently has around $155 billion in assets under management, and last year it surprised with the news that it raised as much as €26 billion for the largest venture capital fund in history, despite a drought in fundraising caused by high inflation. In Croatia, it is present through the ownership of D-Marina, which it acquired from the Dogus group a few years ago. CVC attempted to enter the Croatian retail market earlier, two years ago, by acquiring Tommy, but the owner of that retail chain Tomislav Mamić was not satisfied with the amount of the offers received, so the acquisition did not materialize.

 

However, unlike Tomislav Mamić, who decided to continue developing Tommy, the investment strategy of private equity funds, including Enterprise Investors, involves exiting invested companies, on average within a five-year period. Enterprise Investors engaged JP Morgan last year to explore the market for a potential sale, but given that they recently publicly announced that the sale is on the table, it is reasonable to believe that this time it will materialize.

 

– As a rule, we never comment on market speculation related to our investment strategies. However, we can confirm that JP Morgan has been engaged to consider strategic options for Studenac – responded Enterprise Investors.

 

– I think Studenac has reached its maximum development. They have contacted almost all small retailers with the aim of acquisition. They have bought what they could. They recently attempted to acquire 90 retail outlets from TP Varaždin, but they were beaten to it by NTL. Given that there are not many targets for acquisition and that the 3% growth achieved by Croatian retail is not sufficient for the appetites of private equity funds, Studenac is ready for marriage – said a knowledgeable source on the Croatian retail market who wished to remain anonymous.

While some market experts see CVC as a likely buyer, who might then try to acquire Tommy again or start creating a larger regional chain, others see Mid Europa Partners as a potential acquirer. They believe that this fund plans to repeat the story made with the Romanian chain Profi Rom Food with Studenac. Specifically, this chain was first acquired by Enterprise Investors for €66 million in 2010, seven years later it was taken over by the investment fund Mid Europa Partners for €433 million, and ultimately it ended up in the ownership of the Dutch trader, Ahold Delhaize, who paid €1.3 billion for it.

 

However, at the time of that acquisition, Profi had grown to the position of the third chain in Romania, while Studenac, through the consolidation of small chains and organic growth, has reached the sixth largest position, behind Konzum, Lidl, Spar, Plodine, and Kaufland. For further advancement on the list of the largest, it would need some significantly larger acquisition.

 

Due to this fact, market experts believe that the buyer of Studenac will not be a large foreign retail chain because they usually target retailers with leading market positions. Additionally, pan-European investors, along with the retail business itself, prefer to acquire some real estate, which Studenac does not have since most of its stores are leased. They are also generally oriented towards large formats, with a minimum size of 700 square meters, while Studenac predominantly has proximity stores of about one hundred square meters.

 

Therefore, in the segment of strategic investors, it is more likely that a regional chain or those who see the acquisition of Studenac as an opportunity to create a larger regional chain (for example, Polish chains Zabke or Bierodnke) could be interested.

If Studenac is acquired by a strategic investor, they will be satisfied with lower growth rates, while private equity funds seek significantly higher returns on investment and will certainly continue with further national and regional acquisitions.

Unofficial estimates, based on the EBITDA of Studenac, suggest that this transaction could be worth between €400 and €500 million, but, of course, the question is how much buyers will be willing to spend, given that company valuations have begun to decrease in recent months. For now, only the figures for the 2022 business are known, from which it is evident that Studenac, thanks to aggressive expansion through acquisitions, achieved high revenue growth. However, profit margins are decreasing.

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– Although profit in absolute terms is increasing, profit margins are declining. The biggest impact on this has been the strong rise in wage costs, and it is also possible that the acquisitions of companies with lower profitability have had an unfavorable effect. The Group’s balance sheet is potentially overvalued, as 45% of total assets relate to goodwill (the amount paid for acquisitions above the fair value of acquired assets). The Group’s capital at the end of 2022 was €78 million, while goodwill amounted to €193 million. This means that banks have taken on significant risk and are “betting” on the success of these acquisitions, and potentially also on the subsequent successful exit of the fund, i.e., monetization of the investment – explained credit analyst Mario Kurtović.

 

Free Cash Flow (FCF) is also increasing due to business growth, but it has grown significantly slower than revenue because significant capital investments related to rebranding and remodeling of acquired stores have been made. Thus, from the consolidated revenue in 2022 of €503 million, only €17 million remained for servicing loans and acquisitions.

 

– Since acquisitions in 2022 amounted to €70.5 million, additional financial resources were needed to finance them, which was done through an additional investment from the owner of €10.5 million and an increase in loans of €64.5 million. In total, Studenac Group achieved positive FCF in the period 2020-2022, but whether this will be sufficient for the orderly servicing of obligations in the future remains to be seen. As the investment and acquisition cycle continues, it is possible that banks are further exposed and that we will not see comparable results for some time. The Group’s debt to banks (excluding leases) at the end of 2022 amounted to €136 million, which means that the Group should generate FCF of approximately €25 million annually to keep leverage at an acceptable level – noted Kurtović.

 

It should be noted that Studenac made three more acquisitions in 2023 (Strahinjčica, Špar Trgovina, and La-vor Trade) and opened 116 of its own stores, so the figures on both the revenue and obligations side will certainly be higher than in 2022. And it seems they do not plan to stop this year either.

 

– Acquisitions are part of Studenac’s growth strategy, and our practice is that plans are not disclosed until individual transactions are completed. As for organic growth, we can highlight that our goal in 2024 is to open around 140 stores – responded Studenac, led by CEO Michal Senczuk.