May 11, 2015
Interviewed by: David Snow
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A Turkish Supermarket Delivers Super Returns

BC Partners’ Nikos Stathopoulos gives an overview his firm’s successful investment in Turkish supermarket chain Migros.

BC Partners’ Nikos Stathopoulos gives an overview his firm’s successful investment in Turkish supermarket chain Migros.

A Turkish Supermarket Delivers Super Returns
With Nikos Stathopoulos of BC Partners

David Snow, Privcap: We are joined today by Nikos Stathopoulos of BC Partners. Nikos, welcome to Privcap. Thanks for being here today.

Nikos Stathopoulos, BC Partners:Pleasure.

Snow: Talk about a very important deal that you did in Turkey—Migros, which is a chain of grocery stores. I would love to hear the story, starting with your view of Turkey, all the way through to your thesis for how Migros would grow.

Stathopoulos: Well back in 2006, 2007, we identified Turkey as one of the markets where it’s underpenetrated in terms of private equity despite the fact that it’s a very large market. It’s an economy of 80 million people. It’s growing and there could be opportunities in there. So, when the Koch Group, the largest conglomerate in the country, decided to put Migros up for sale, we were ready and able to act.

Migros is the largest supermarket chain in the country. It was an investment we made in 2008, right before Lehman collapsed actually. It was, and is, the largest private equity investment ever made in the country. It was a $3.3billion transaction. And the thesis was relatively simple.

We were buying the market leader in the foodretail sector, which tends to be a defensive sector, which has substantial growth opportunities driven by the fact that it operates in a market with 80 million in a population where the demographics are extremely attractive.

You have more than 50% of the Turkish population under 30 years old—a very young and dynamic population where GDP was growing at substantial rates, more than any other European markets we could see. And where the foodretail sector itself had the characteristics of sectors where you could see the dynamics of organized retail being in a very nascent stage. In most Western European markets, organized retail represents 80% or 90% of all food retail in the market. In Turkey, it represented only 40%.

So, as the country was developing, as GDP was growing, as the GDP per capital and actually the financial power of each consumer was growing, the organized percent would have grown. And that, I am pleased to say, is exactly what happened. Organized retail has grown. The market leader has benefited from it. We were able to double the number of stores when we bought the business in the last six years. That resulted in almost doubling the sales. We’ve seen both organic growth through new store openings as well as like-for-like growth. And the business is growing from strengths to strength.

Snow: What does it look like from an exit perspective, at this point?

Stathopoulos: Earlier this year and at the end of last year, we agreed to sell half our stake into a local conglomerate, which is very active in the consumer space. When we bought the business in 2008, it was a public company. We took it private, then we re-IPO’ed it in 2011. At the moment, we’ve staged our exit and eventually, I suspect, we will be exiting the business in the next couple of years completely.

Snow: Do you remain enthusiastic about Turkey as a place to put your private equity dollars?

Stathopoulos: I remain enthusiastic in Turkey in the sense that the demographics of the country are still there. The growth of the country is still there. Naturally, as in every emerging market economy, you have to be cognizant of the effects of risk you will take and the potential devaluation or depreciation that their local currency could have, which we did experience during our ownership as well. And any potential geopolitical risk that countries like this have. But the main fundamentals of the country remain very strong.

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