MidEuropa grew Profi Rom Food’s revenue by more than 3x during its seven-year holding period, thanks to a strategy that prioritised digitalisation and beefed up logistical capabilities, setting the stage for a recently announced sale of the Romanian supermarket chain.
In October, MidEuropa agreed to sell Profi to Ahold Delhaize, a food retail group based in Zaandam, the Netherlands, for an enterprise value of approximately €1.3 billion pre-IFRS16 (€1.8 billion post-IFRS 16).
London-based MidEuropa invested in the company via its Fund IV. The deal is expected to generate a money multiple of around 2.5x for the fund, according to a source familiar with the matter. The sale represents a full realisation of MidEuropa, which acquired a majority stake in Profi in February 2017 for an enterprise value of around €500 million, the source said.
Growth drivers
Timișoara, Romania-based Profi generated revenues of over €2.5 billion in the twelve months ending June 2023 and increased sales by over 3.3x since MidEuropa’s investment.
“When we bought Profi, it was a business with around 500 stores, and now it’s close to 1,700,” Aleksandar Dragicevic, principal at MidEuropa, told PE Hub Europe. “There was a strong focus on opening new stores, and we contributed by helping Profi’s management develop and enhance their ability to source locations and open stores quickly.”
MidEuropa developed several concepts and adjusted the value proposition of the company. This included “focusing on the assortment that’s being offered and offering something which is different to what exists in the Romanian market”, he said.
The product mix helped Profi to stand out “with its own unique shoppers” in the country, he added.
MidEuropa upgraded Profi’s technology and logistics capabilities. “Under our ownership, the management developed and launched a shopping app with almost two million users today,” Dragicevic said. “A strong logistics framework was needed to support the stores and is something we were able to help management with.”
MidEuropa continued to invest in and develop the company’s operational capabilities during the covid pandemic. Instead of making a hasty exit, the firm believed they could do more with Profi to “optimise value and enhance the equity story”. “This meant we maintained a focus on operational improvements to ensure that Profi had real strategic value when it’s being sold,” he said.
“Once the economic pressures caused by the pandemic had passed, the M&A market picked up again and Profi was a very attractive business to several interested parties,” Dragicevic said.
Profi received interest from both strategic parties as well as private equity firms, he reported.
Exit environment
Transactions are still happening, but the volume is lower than usual due to the “relatively challenging macro environment”, according to Dragicevic.
“What we are seeing is that for high-quality assets, there is appetite”, and this deal is “MidEuropa’s fourth liquidity event this year”.
Dragicevic expects capital deployment and exits to continue as “strategies are being adapted to slightly different conditions in the economy”.
“Seeing everything MidEuropa has done this year, I don’t see concerns for exiting the businesses,” he said. “If there’s a time for investment and operational improvements that can create value, take the time and make sure that you are exiting at the right time.”
Sector-wise, he thinks consumer market is “very attractive” and remains a key area of expertise at MidEuropa. “While the sector has clearly faced challenges, the fundamentals are strong and continue to be driven by evolving consumer demands and needs – such as fresher, local grocery produce.”
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