Morrisons LBO pain has a cure: Sainsbury's M&A

J Sainsbury

24/07/2026 09:46

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan

    DUBLIN, July 24 (Reuters Breakingviews) - Bland ingredients can sometimes be rescued by folding them into something richer. That's a potential hope for private equity firm Clayton, Dubilier & Rice (CD&R), almost five years after its buyout of Wm Morrison Supermarkets for £9.8 billion ($13.1 billion) including debt. The UK grocer has hemorrhaged market share since then, thanks to a price war sparked by German discount rivals. CD&R's best chance of an exit may be to seek a merger with bigger supermarket J Sainsbury SBRY.L.
CD&R won a 2021 auction for Morrisons after a heated bidding war. The UK grocery chain then ranked among the “Big Four” supermarkets alongside Tesco TSCO.L, Sainsbury's and Asda. But since then, Germany's Aldi and Lidl have aggressively expanded. Morrisons’ market share dropped from over 10% to about 8%.
The financial results aren't too exciting, either. CreditSights analysts reckon Morrisons' adjusted EBITDA was £869 million over the 12-month period to April, compared with £830 million in the financial year to October 2024, implying tepid growth. Generously using Sainsbury's 12-month trailing valuation multiple of 5.8 times EBITDA, Morrisons' enterprise value now would be about £5 billion.
CD&R is in no hurry to sell. The specific fund that Morrisons sits in is a 2021 vintage, according to one investor disclosure, making it barely halfway into a typical 10-year fund life. Still, buyout barons tend try to exit specific investments after five years or so, which means it's worth considering CD&R's options.
A listing would be tough. Morrisons' net leverage is around 6 times EBITDA, according to CreditSights, which is far beyond what stock markets usually tolerate. Public investors would be wary of putting cash in to de-lever a slow-growth business. It's also hard to see another private-equity buyer taking the asset off CD&R's hands, given Morrisons' size and tough prospects.
That leaves a sale to a listed company, of which Sainsbury’s is the most plausible. In the past, antitrust authorities opposed grocery deals, fearing food-price rises. Britain's competition watchdog in 2019 blocked Sainsbury's £7.3 billion Asda takeover. The political winds have changed, however, and antitrust authorities have recently signalled a laxer overall stance. It helps that Sainsbury’s and Morrisons together would have a smaller market share than Tesco, while the continued presence of Aldi and Lidl should also put competition minds at ease.
A mostly stock-based merger would give CD&R a way out, albeit slowly through gradual stock sales, in addition to some juicy synergies. Sainsbury's and Asda's deal pegged annual cost savings at £500 million. The trickier questions are whether Sainsbury's CEO Simon Roberts would bite, and how a transaction might work.
Because Morrisons' leverage multiple may be higher than its fair valuation multiple, CD&R might need to inject fresh equity in order to make a share-based merger work and leave it with a stake in the combined entity. That would sting. But for CD&R, it's probably a better path than waiting for an alternative exit window that may never open.
($1 = 0.7502 pounds)
Follow Aimee Donnellan on LinkedIn.
     

(Editing by Liam Proud; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))