How Di Pilla’s consortium outgunned Blackstone for Masters

UBS banker Matthew Grounds, along with a consortium of investors that include the Spotlight Group and Chemist Warehouse, outlaid more than $700m to scoop up Woolworths’ loss-making Masters home-improvement chain, in a deal that outgunned US private equity giant Blackstone.

As revealed by DataRoom online yesterday, by assembling lease agreements for close to 80 per cent of the portfolio, the group, formed and advised by ex-UBS banker David Di Pilla, has already offset the bulk of that money.

While the new tenants, which include Masters’ archrival, Bunnings, as well as The Good Guys and JB Hi-Fi, will not occupy the stores until April next year at the earliest, the deals struck by the retailers are understood to have helped deliver an edge over ousted suitor Blackstone.

Sources close to the deal said the New York-based private equity firm had submitted a bid that would remove “all the liabilities associated with Masters” from the balance sheet.

However, it’s not clear whether this commitment also extended to the business’s 21 development sites.

Sources within the Di Pilla-led consortium cited this as a key factor in the negotiations.

Yet, as Blackstone ponders the reasons for its defeat, Woolworths’ delay in unveiling the terms of the deal with the Home Consortium, as the Di Pilla-led group is dubbed, generated some unease within some quarters amid concerns Woolworths’ and US retailer Lowe’s were unable to reach an agreement about the selldown of their jointly owned business.

The supermarket giant and Lowe’s jointly control Hyrdox Holdings and the latter has yet to give its blessing to the sale.

Under the terms of the deal, the Home Consortium has bought Hyrdox, while Woolworths has carved out Home Timber & Hardware as well as the Masters inventory from the vehicle and flogged these assets to Metcash and Great American Group, respectively.

It is understood Lowe’s refused to forego its put option on the business despite a pledge from the supermarket giant to assume all liabilities, opening up the accusation that Woolworths has yet to fully disentangle itself from the venture.

The supermarket giant is set to hand down its full results today and had hoped to establish some headroom between the Masters exit and the annual post-mortem of its full year earnings as new CEO Brad Banducci seeks to steer the supermarket operator back to growth.