Private equity’s retail returns ’to be lower’

John Lovering, chairman of Debenhams and serial dealmaker, said on Wednesday that he expected returns in private equity to be lower over the next five to ten years given the ”wall of money” that has flowed into the industry in recent years.

Speaking on a well-attended private equity panel at the World Retail Congress with Jonathan Feuer, partner at CVC, and John Pfeffer of Kohlberg Kravis Roberts, the chairman of the recently-floated Debenhams said that flow of capital made it harder to pull off high return deals.

He also said big deals - the CVC-led potential £11bn-plus takeover deal of J Sainsbury and KKR’s proposed acquisition of Alliance Boots - were becoming more challenging in the face of ever-growing public scrutiny.

Asked about the likelihood of the Sainsbury deal coming off, Mr Lovering said negotiations with pension trustees ”was an issue” for the industry.

”As deals get bigger in the retail space, the public think they own the retailers as well as shareholders and we are moving into areas of public relations and the odds of doing these deals are much harder than when you are an entrepreneur or doing small companies,” he said.

Mr Feuer and Mr Pfeffer declined to comment on both Alliance Boots and Sainsbury at a plenary session on Wednesday. CVC, Blackstone Group, Texas Pacific Group and KKR have until April 13 to table an offer for J Sainsbury or walk away. However, it has to iron out the pension issue before it can even approach the board with a potential offer for the company.

Mr Lovering also said that management teams would be in a stronger position in the coming years. ”Fund returns for five to 10 years will be lower and the premium for management will go up, because only transformational strategies will be the differential strategies over the next decade, so the desire for strong management will rise.”

It is thought that the CVC-led consortium are very keen to keep Justin King, chief executive of Sainbsury, and his management team on board should it succeed in taking the retailer private, while KKR has teamed up with Stefano Pessina, Alliance Boots’ executive deputy chairman and biggest shareholder, in its efforts to take over the drugs wholesale and retail chain.