Renewed private equity activity and low retailer valuations raise the likelihood of another round of public-to-private deals, Oriel analysts believe.

The £955m sale of Pets at Home to KKR showed that private equity groups are once again seeking acquisitions as debt markets improve, and quoted retailers are likely to appeal.

Debenhams, bookseller and stationer WHSmith and motor accessories specialist Halfords are among those that could prompt private equity interest, according to Oriel.

The broker said: “With some private equity firms coming under increasing pressure to invest cash raised, and retail an area that has always been a favourite for this type of vehicle, we expect 2010 to be a year in which assets change hands. The quoted sector’s derating offers an opportunity to all.”

Retailers with “defensible, market-leading positions” will be most prominent on private equity’s radar.

Debenhams “has the most ticks in the box”, Oriel said. Fundraising last year that dealt with balance sheet concerns, capital expenditure under control and Debenhams’ discount to the sector were cited as among the factors that make it a candidate.

The broker said that there are “clear attractions” in Halfords, such as low capital expenditure requirements, and either of WHSmith’s divisions - travel or high street - would interest private equity funds.

“The high street business is the less sexy of the two but has very limited capital requirements and the travel business holds a very strong position in nearly all of the markets in which it trades,” said Oriel.

Topics