Kohlberg Kravis Roberts & Co. is in advanced preparations for an initial public offering of stock in Dollar General Corp., said people familiar with the matter, as the private-equity firm aims to solidify its reputation ahead of its own trip to the public markets.
Dollar General has become one of KKR's best-performing assets amid the down economy. For the quarter ended May 1, its profit surged to $83 million from $5.9 million a year earlier. While most retailers are retrenching, Dollar General is planning to raise its store count by 450 this year from 8,362 locations at the end of 2008. The Goodlettsville, Tenn., company's gross margins rose to 30.8% from 28.8%.
When KKR first bought Dollar General for $7 billion, it valued the equity at $2.8 billion, using debt to pay for the rest. Assuming the company can attract the same market values as Wal-Mart and other successful retailers, that equity stake could be worth about $3.7 billion today, meaning KKR would have increased its investment about a third.
A comparison of of Dollar General's April quarters pre and post LBO are below. Operating results are vastly improved -- and they sure better be, as the massive debt incurred in the LBO requires upwards of $80million per quarter in interest payments....