Why does EG Group want to buy Asda and what will it do with it?

But this week, the London-based private equity house, in partnership with Mohsin and Zuber Issa, emerged as frontrunner in the £6.5bn race, ahead of US rival Apollo Global Management. As The Grocer went to press (on Thursday), a formal announcement from Walmart and TDR was expected on Friday.

So, why has Walmart opted for this bid? What does the future hold for Asda? And are there competition issues to overcome?

The deal – expected to value Asda at significantly less than the £7.3bn failed Sainsbury’s merger – will return it to British hands following Walmart’s £7bn takeover in 1999.

However, Walmart will retain a minority stake of up to 40%.

“Part of me was a little surprised that TDR is the preferred bidder,” one senior dealmaker says. “The Apollo bid was higher, but Walmart seems to be more interested in the synergies of working with an entity with operational retail experience.”

Opinion: An Asda-EG Group merger will reverberate through the grocery sector

Apollo was expected to follow the classic leveraged PE playbook, separating Asda into an opco and propco, as well as focusing on growing the online business.

But Clive Black of broker Shore Capital says the choice to go with the Issas puts “raw entrepreneurship and ambition” in Asda’s driving seat.

“It’s a remarkable case of immense ambition, courage and entrepreneurship on behalf of the siblings behind the now global, and heavily leveraged, Euro Garages business,” he says. “What we like about their involvement is the retail experience and business acumen.”

New culture

Black predicts the Issas will introduce “a much more agile, refined and lean decision-making culture” to Asda.

The brothers have built EG up from a single petrol station in the north of England to a behemoth with almost 6,000 sites worldwide (396 in the UK) and annual revenues of €20bn (£18.2bn). They identified a gap in the market to offer drivers more than just petrol, signing franchise agreements with the likes of Starbucks, Subway and Greggs and building a genuine convenience offering.

The significant opportunity in the convenience market will appeal to both the Issas and Walmart. The new Asda on the Move trial launched this month in three EG forecourts, offering 2,000 fresh, chilled, frozen and on-the-go own-label SKUs, offers a possible glimpse of developments to come.

It’s potentially bad news for current EG c-store supplier Spar.

“What makes Asda so appealing for EG is the opportunity to replace Spar as the wholesaler,” a City source says. “Think of the Tesco-Booker deal: Asda could suddenly fill that space too.”

The UK’s forecourt shop sector generates sales of around £4.5bn a year, according to the latest report by KPMG.

“At the start of the year, we predicted convenience retail on the forecourt would grow two to three times faster than UK retail in its entirety,” says KPMG head of retail Paul Martin. “Covid has changed some consumer behaviours. The big box store has seen a revival for the short to mid-term, but convenience is a format that should be interesting for the Asda ecosystem.”

Martin also emphasises how much the sector is changing. In 2015, 90% of revenues came from fuel at forecourts, but in 2030 he predicts it will only be 20%, with retail, adjacent services, such as home delivery, pick-up points and Amazon lockers, and electric charging points accounting for 80%.

A source with knowledge of EG Group’s long-term ambitions adds electric charging points in supermarket car parks are an important part of the vision.

The rise of Euro Garages