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The private equity owner of UK supermarket chain Asda defended its controversial buyout of the business, as it faced a grilling from politicians.
TDR Capital, which acquired Asda in a £6.8bn deal in 2020, has faced scrutiny over the billions of pounds of debt it used to finance the acquisition.
In a rare public appearance in front of the UK Parliament’s Business and Trade Committee, TDR managing partner Gary Lindsay downplayed concerns over the £4.2bn of debt that the UK grocer bears in a higher interest rate environment.
Private equity firms such as TDR took advantage of more than a decade of ultra-low interest rates to strike thousands of debt-funded deals for companies across sectors ranging from retail to healthcare.
In a higher interest rate environment, some of these businesses are seeing the cost of servicing their loans increase and many will need to refinance existing their debt at a higher cost in the coming years.
“While it’s been great for the Asda business to enjoy a lower cost of capital for the last three or four years, that was never a central tenet of us investing in the business,” Lindsay said.
“We feel more than comfortable with the leverage level at Asda and we feel more than comfortable that when we decide to refinance the balance sheet in the next two or three years, the business can absorb the cost,” he added.
TDR and its Asda co-owners, the billionaire Issa brothers, invested just £200mn to acquire the supermarket, choosing to finance the deal by loading more debt on the Issa’s petrol stations business EG Group, the Financial Times previously reported.
Under TDR’s ownership, Asda has sought to diversify its income stream away from its core supermarket business and into convenience stores, after losing market share to German discounters Aldi and Lidl in recent years.
Last year it struck a £2.1bn deal for 350 petrol stations and more than 1,000 food-to-go locations previously owned by sister company EG Group. In 2022, Asda also agreed to buy 132 retail sites from the Co-operative Group.
The TDR executives were also questioned over the treatment of Asda workers. In late December, some unionised Asda employees at a supermarket in Gosport voted to strike citing concerns over health and safety conditions and a ‘toxic’ work culture, according to a statement released by trade union GMB. The strike, which was due to begin later this week, has since been postponed.
In response to questions over working conditions and the strike action, TDR’s Lindsay said that Asda regularly met with the union.
“I do also want to be clear, we as TDR Capital don’t run the business. We sit on the board. I don’t want to conflate what Asda do from a managerial perspective, how they engage and ultimately how they face off against different stakeholders in the business,” Lindsay added.
This article has been updated to correct Asda’s debt position and the value of its petrol station acquisition, and to reflect the postponement of the Gosport strike.
