Musgrave has to play cards right if it is to rejuvenate Superquinn
When it comes to leveraged businesses, it is not the amount of leverage, but the timing.
The purchase of Superquinn in 2005 for €450m and follow-on property acquisitions might have been sustainable if the Irish economy had continued growing and the property market stayed perky.
When the opposite happened, Superquinn owners Select Retail Holdings found they weren't throwing off enough cash to keep their debt levels within the parameters demanded by the banks. Outcome -- receivership and sale to a trade buyer.
This is about all that can be said with certainty about what is an unlimited company, with no public information about its earnings.
Retail bellwether Tesco trades on almost 12 times earnings, so it is hard to see on the surface how Superquinn can command the kind of valuation Musgrave is believed to have coughed up.
However, Superquinn is blatantly hugely under-capitalised, with several stores starting to look rather jaded.
Clearly, a hard-nosed decision not to pay all outstanding suppliers makes the deal more attractive for Musgrave. A second element is avoiding a heap of property liabilities built up by the previous owners, making the assumptions behind the transaction even sweeter for Musgrave CEO Chris Martin.
Musgrave Group will simply have to play with the deck of cards they've been dealt by the previous owners. Musgrave itself is a business with sluggish growth but a strong balance sheet that was able to sustain a €17m dividend last year for the Musgrave family.
Clearly, Superquinn is not the kind of business that is going to suddenly transform Musgrave and the purchase should probably be filed under the heading 'slow burner'.