Successful stores were dragged down by poor property deals
IT was the worst-kept secret in Irish retailing for over two years. Despite a compelling brand, a market share of 6.4pc and a profitable trading business, Superquinn has been on the sales block for more than 24 months, albeit unofficially.
A number of factors caused the deal to be done now. For example, many of Superquinn's owners are property developers and have financial challenges of their own, due to their exposures to the property market.
The banks that lent money to this group have also been pushing for a sale in order to recover at least some of the €275m they are owed.
With a purchase price significantly over €100m, they will make a significant dent in the debts they are owed, but most observers believe they will still be left nursing some losses.
Musgrave itself has refused to comment in any detail on the purchase price.
While the first anyone knew of the sale was on Monday evening, the genesis of the deal goes back a lot longer.
Superquinn's owners, Select Retail Holdings (consisting of several property developers, financiers and accountants), have been working with the giant US investment bank Goldman Sachs, vetting expressions of interest and generally trying to drum up interest in Ireland's third-largest multiple.
While suitors have expressed interest at various junctures, all of them have been put off by the state of Superquinn's property-heavy balance sheet. As one source put it bluntly: "Nobody wanted it." However, since 2008 Musgrave, owner of Supervalu, Mace and Centra, has stayed in contact with the representatives of Select Retail Holdings on and off, although the two sides did not agree on a valuation of the business.
While nobody wants to say who initiated the contact, Musgrave's position has remained consistent from the start.
It wanted to buy Superquinn's stores, but without the complications of the property liabilities that the company had accumulated. "Buyers were saying, 'We want it, if you can clean it up,'" said Andrew Street, the man currently running the chain.
That cleaning-up process has been the key subject occupying the two sides during recent weeks.
Under an unusual structure, a solution will be designed to allow Musgrave take the core business of Superquinn -- the stores, the employees, the distribution network, head-office operations -- while leaving behind onerous property contracts that Select Retail Holdings took on in the final years of the boom.
A store in Dundalk is not believed to be part of the deal.
It is understood that two key property contracts with which Musgrave did not want any involvement relate to sites at Naas, Co Kildare and Stillorgan, Co Dublin.
The Naas site, in particular, was an expensive acquisition for the company, which paid over €20m at the tail end of the boom. It had formerly been owned by the local VEC.
The company planned to build a huge retailing complex at this site. However, due to the property downturn, it never happened.
Mr Street said yesterday that the company had subsequently found it difficult to extricate itself from such deals and these kinds of contracts were taking up huge chunks of cash flow from the core retail business.
"They have become a major drag on the business," another source admitted yesterday, adding: "These are deals that became a major millstone once the property market turned."
As a result Musgrave's chief executive Chris Martin opted for a mini-NAMA solution for Superquinn, leaving all the toxic contracts behind and only taking the beating heart of the business, which is the 24 stores.
Mr Martin has been shy about revealing what he paid for the business, simply hinting that it was a big deal for Musgrave as a company.
"We really stretched ourselves," he said.
The Irish Independent understands the deal is valued at well over €100m.
Superquinn's 6.4pc share of the retail market has been shrinking for some years. It had been almost 8pc as recently as 2007. The receiver appointed by the banks (who are themselves owed €275m), Kieran Wallace of KPMG, has by law to get the best return possible for those who appointed him.
Yesterday he told this newspaper he was "very comfortable'' that the deal with Musgrave fulfilled this requirement. However, considering that the chain was sold for €450m in 2005, a purchase price believed to be significantly over €100m is still a large reduction in value for Ireland's third-largest retailer.