Retail chain B&M rewards private equity buyers' faith

The discount retailer B&M Bargains has demonstrated why a US private equity giant bought it last year in a deal worth nearly £1bn, by posting a sharp jump in profits.

Sir Terry Leahy, the former chief executive of Tesco, became chairman of B&M after Clayton Dubilier & Rice (CD&R) acquired a controlling stake in December that valued the retailer at £965m.

The Liverpool-based B&M – which sells food, drink, toys and homewares – has become a major force in the discount retail sector since the Arora brothers, Simon, Bobby and Robin, bought the business in 2005 and launched an opening offensive that took it from fewer than 20 stores to more than 350 today.

For the year to December the retailer posted a 71 per cent leap in pre-tax profits to £88.3m, on turnover up 31 per cent to £935.2m.

According to its latest accounts, B&M plans to continue with its store rollout to take advantage of the soft retail property market. It added: "The directors are confident that the business is well placed to exploit the current market opportunities, albeit on a prudent and cautious basis."

B&M employs more than 13,000 staff and serves two million-plus customers a week.

The Arora brothers created a retail behemoth by forging close buying relationships with suppliers, and the group's purchasing clout is only likely to increase as it delivers higher sales through more stores.

At the time of the B&M purchase, CD&R hinted strongly that it planned to launch the chain overseas.

Market sources believe that B&M could seek to list on the London Stock Exchange over the coming years.

Ahead of that, there is speculation that Warburg Pincus, the private equity-owner of Poundland, plans to either sell or float the single-price retailer in 2014. Like B&M, Poundland – whose chairman is Andy Higginson, a former finance director of Tesco and a contemporary of Sir Terry at the chain – has powered ahead, as bargain-seeking shoppers have flocked to its stores during the downturn.

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