Over the past few years, it's been hard to find successes in private equity. But, in the case of KKR, there is no doubt that it made a good deal in the leveraged buyout of Dollar General in July 2007 (the company had been public since 1968). The price tag was $7.2 billion.
Now, the company has filed to go public. And, in light of KKR's recent success with the Avago (NASDAQ: AVGO) public offering -- as well as the resurgence in the equities markets -- there's a good chance that Dollar General will also get a nice reception.
Founded in 1939, Dollar General has become a power in the retail industry, with 8,577 stores located across 35 states. The typical store, which is about 7,000 square feet (known as a "small box"), is packed with a broad selection of merchandise. What's more, the low-price strategy has certainly been attractive for customers.
Keep in mind that the company has posted annual same-store sales growth for the past 20 years. In other words, Dollar General is more than just a play on the recession.
Under the ownership of KKR, there was been a continued focus on improving operations. For example, in early 2008, Dollar General hired Richard Dreiling as the CEO, who has 39 years of retail experience. There have also been other key hires.
Some of the improvements include optimized product assortment, better markdown strategies, higher inventory turns, customized store hours to enhance demand, improved real estate vetting, aggressive store remodeling and relocations, and better analytics.
So far, things are working out. Sales increased by 10.1% last year, with same-store sales growth of 9%. In fact, in Q1 of this year, sales growth was 15.7% and same-store sales growth was 13.3%.
At the same time, there has been a strong improvement in margins, which have gone from 27.3% in 2007 to 29.3% in 2008. Last year, net income was $108.2 million. As for Q1 of this year, net income came to $83 million.
True, Dollar General has a heavy debt load because of the leveraged buyout. Yet, the company has been able to reduce long-term obligations by $540.9 million to $4.1 billion.
The underwriters on the IPO include Citigroup (NYSE: C), Goldman Sachs (NYSE: GS) and yes, KKR.
Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook
