$750 Million Dollar General

After much anticipation and speculation, buyout firm KKR & Co. made it official Thursday by filing to take dollar store operator Dollar General public. The offering, which seeks to raise as much as $750 million (all for investors), was welcomed on Wall Street, particularly by other private equity firms seeking to cash out of investments made during the buyout boom of 2006 and 2007. Indeed, the discount retailer’s IPO is expected to trigger a slew of other IPO filings as buyout firms seek to sell shares into a rising stock market.

KKR acquired the dollar store operator for $7.2 billion in 2007 and it has become the star of KKR’s portfolio. That’s because unlike some of KKR’s other investments (TXU, now Energy Future Holdings, springs to mind), the recession has been great for business at Dollar General. The discount retailer, which typically sells items for $10 or less, has been a magnet for cash-strapped shoppers looking to save money on basic necessities, such as paper towels, toothpaste, and even food. Several years back, the chain launched Dollar General Market, which sells fresh produce and a variety of refrigerated and frozen foods. Indeed, the company is looking to open about 500 new stores this year in a sour retail environment that has pricier chains shuttering stores and exiting markets.

KKR has a lot riding on the success of Dollar General’s IPO. The buyout firm itself filed to go public two years ago with an offering valued at more than $1 billion. But its timing proved disastrous coming just prior to the onset of the global credit crunch, which dried up the funding for private equity transactions. Now, after a change in strategy, KKR is looking to complete an IPO in October in a deal that involves merging with its minority-owned European affiliate, KKR Private Equity Investors.

KKR will also help underwrite Dollar General’s IPO and has offered to pay a special $200 million dividend to itself, Goldman Sachs, Citigroup and other shareholders.

If all goes well and the offering raises the entire $750 million, investors can take the money they pocket, pool it, and buy say 30,000,000 boxes of Oreos, or 375,000,000 tubes of toothpaste, or 2,7000,000 rolls of toilet paper. The possibilies are endless.

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Photo by Robert Stinnett, under a Creative Commons license.