Dealmakers: Easing the burden

Much like the rest of the year, the back end of 2023 saw the Issa Brothers and their dealmaking activities making news headlines.

It proved to be a busy year for the brothers and as it came to a close their Blackburn headquartered EG Group announced it had entered into a “definitive agreement” to sell all its 218 KFC franchise restaurants in the UK and Ireland to Yum! Brands’ KFC Division.

The sale is expected to complete in the first half of 2024, with proceeds used to repay debt.

No figure has been put on the deal, the latest in 12 months of serious activity to reduce the global forecourts and food service operator’s debt burden.

To that end, the transaction agreed by EG Group – the largest KFC franchisee in the UK and Ireland – was described as an additional step in its “successful deleveraging strategy” and evidence of continued progress towards putting in place a “sustainable capital structure”.

Zuber and Mohsin Issa, co-founders and chief executives of EG Group, said: “We are proud to have been a strategic partner of KFC in the UK and Ireland, playing an important role in helping the brand expand its footprint.

“Now is the right time to hand the baton to the KFC leadership team to continue to grow the brand in the UK and Ireland.

“This is the latest transaction in our significant deleveraging this year to put in place a sustainable capital structure for the group.”

As part of that strategy, at the end of October the retail and petrol forecourt business completed the sale of its UK operations to supermarket group Asda, which is co-owned by the brothers, in a £2.07bn deal.

It said proceeds from the transaction would be used to repay EG’s debt, “significantly reducing net leverage” and enabling $3.2bn of loans to be extended to February 2028. The business revealed it had also secured a new $500m loan, with further refinancing to follow.

Commenting on the deal at the time, Zuber Issa said: “Following this transaction and the successful extension of the debt maturities to February 2028, EG Group will benefit from a sustainable capital structure from which to build for the future.”

The group said it would continue to operate in the USA, Australia, Germany, France, Italy, the Netherlands, Luxembourg and Belgium as well as at 32 sites in the UK.

Lord Stuart Rose, in his role as chairman of EG Group, described the transaction as an important milestone for both companies.

He said: “EG Group can focus on international growth underpinned by its strengthened balance sheet, whilst Asda can accelerate its convenience rollout on proven, well-invested sites.

“There is now a clear opportunity to grow and build the international business whilst ensuring EG plays a pivotal role in the energy transition.”

The activity to reduce EG Group’s debt burden also saw a deal in August to sell 63 of its stores in Kentucky and Tennessee.

They have been acquired by NASDAQ-listed Casey’s General Stores, which has said it intends to retain all the stores’ employees.

Earlier, in March, EG had announced plans to sell and lease back more than 400 of its US sites in a transaction worth $1.5bn. Those assets represented around 15 per cent of EG Group’s total freehold property. Again, the money raised was used to cut the debt burden.

The portfolio in question is located on the east coast of the USA and is made up of 415 store assets under the Cumberland Farms, Fastrac, Tom Thumb and Sprint brands. EG America said it would continue to operate the sites.

The buyer was Realty Income Corporation, which is listed on the New York Stock Exchange and is an S&P 500 company. It currently owns around 12,200 real estate properties primarily under long-term net lease agreements with commercial clients.

On the back of all this activity, EG Group’s third quarter trading update in November declared the business, based in Waterside in Blackburn, was “making significant progress” in repaying and reducing its total debt.

The figures showed the completion of the sale to Asda along with the US deals had brought its total debt repayment in 2023 to around $4bn. The statement declared: “The group remains committed to further deleveraging.”

The Issas added: “On 27 November, we achieved an important milestone by addressing all our remaining 2025 maturities through successfully completing our refinancing activities.

“These included the Amend & Extend of Term Loans from 2025 to 2028 – and issuing new Senior Secured Notes.”

The brothers added: “We remain focused on deleveraging the business and driving earnings growth in the near term.”

November proved to be a busy month which also saw EG Group reaching a “ground-breaking” strategic deal to buy Tesla’s latest ultra-fast charging units.

The business is looking to roll out up to 20,000 electric vehicle chargers across around 3,600 of its petrol filling stations, as well as third-party locations, over time.

Meanwhile, for Asda, the EG Group acquisition has created a group with expected combined revenues of nearly £28bn, serving 21m customers every week.

Gary Lindsay, managing partner at TDR Capital, which owns the supermarket group with the Issas, said: “This transaction is all about growth – and bringing together the complementary strengths of Asda and EG UK.”

It followed its acquisition of 119 convenience sites with attached filling stations from the Co-op Group, which have started to convert to Asda Express.

The supermarket group is rolling out its Asda Express across EG UK’s 356 predominantly freehold sites, which include modern convenience stores on petrol filling stations, while committing to opening a further 300 stand-alone convenience stores by the end of 2026. The acquisition also accelerates Asda’s move into the £62bn foodservice market, with the transfer of 462 Greggs, Burger King and Subway outlets as franchise agreements. Asda now wholly owns fast food chain Leon, which it will also look to introduce to its stores.

Asda also confirmed to investors that it had repaid a £200m loan facility used to acquire the Co-op’s convenience stores and forecourts business.

That repayment was made possible by Asda’s strong cash generation in the year to date, which reduces the retailer’s total debt leverage to 3.8x.

Michael Gleeson, Asda’s chief financial officer, said: “Asda has a sustainable capital structure, strong cash generation and clear strategy to deleverage over time, as the early repayment of the loan facility used to acquire the Co-op business demonstrates.”

The Blackburn-born Issa brothers both made the 2023 Sunday Times Rich List. According to the research they are estimated to be worth £5.05bn, an increase of more than £300m over the previous year. They were placed as the fifth richest people in the North West of England.

Their business empire began back in 2001 when they bought a run-down petrol station close to Bury town centre.