Google is considering teaming up with British private equity firm Permira to launch a bid for the business that runs Tesco’s Clubcard.
The US technology firm is believed to be on a longlist of 10 parties considering a bid for Tesco unit Dunnhumby next month.
The longlist, whittled down from about 40 approaches to Tesco, will be sent detailed information on Dunnhumby in the next fortnight. First round bids are scheduled to be filed by the end of July, with the company thought to be worth as much as £2bn.
Tesco is selling off Dunnhumby as part of its bid to to raise up to £5bn to firm up its balance sheet, in the wake of a collapse in profits and a £263m accounting scandal last year. Tesco made a £6.4bn annual loss last year – the biggest ever recorded by a British retailer – amid a supermarket price war prompted by the rise of discounter supermarkets, such as Aldi and Lidl.
The retailer is also weighing up a sale of its Korean chain Homeplus, thought to be worth £4bn, and has already offloaded its Blinkbox film and music streaming businesses.
Dunnhumby gathers and analyses data from one billion shoppers around the world each year, and by scrutinising the contents of your shopping trolley it can tell if you are single, a fast-food junkie or a family juggling a tight budget with school-age children.
Other parties interested in Dunnhumby are thought to include WPP Group, the marketing services company headed by Sir Martin Sorrell, and Nielsen, the market research firm.
A host of private equity firms are also thought to be reviewing a bid, including Apax Partners, Hellman & Friedman, Bain Capital, Blackstone, Advent International, TPG and CVC.
In April, Tesco paved the way for the sale of Dunnhumby, which helped develop the supermarket’s Clubcard scheme, by breaking up a joint venture with US retailer. Sources said the dissolution was prompted by the fact that there was a change of control clause in Kroger’s deal with Dunnhumby.
Some sources have suggested that the change in the relationship with Kroger, which is now governed by a licence, meant the value of Dunnhumby had dropped dramatically – to as little as £600m from the £2bn initially suggested.
One source suggested the constant drip feed of information about potential bidders for Dunnhumby was an attempt to drive up the firm’s price after the loss of Kroger.
However, the US joint venture prevented Dunnhumby from expanding with other American partners. Some analysts believe the data firm now has more potential.
Dave McCarthy, a retail analyst at HSBC, said: “Dismantling the Kroger agreement was done deliberately to enhance the long-term potential of the business. While it reduced short-term profits, it increased long-term potential.”
Google’s venture capital arm, Google Capital, is thought to be interested in exploiting the data analysis capabilities that have helped Dunnhumby become a leading customer loyalty programme operator, according to Sky News – which first reported the technology firm’s plans.
Its partnership with Permira marks a further step in the two businesses’ relationship, after the private equity firm, which has a specialist technology arm based in Silicon Valley, sold a stake in Renaissance Learning – an educational data analytics company – to Google Capital.
Google Capital has already invested in SurveyMonkey, an online survey provider, Glassdoor, a recruitment and job-review website and CreditKarma, a website that helps consumer track their credit and finances.
Dunnhumby was set up by husband and wife Edwina Dunn and Clive Humby in 1989 in the kitchen of their home in London. It now employs nearly 3,000 people worldwide. The company made a pre-tax profit of £58.7m in the year to 28 February 2014, down from £67.6m a year before, according to accounts filed at Companies House. Sales rose to £191.5m from £165.2m in 2013.
Tesco bought a stake in the company in 2001, before buying the whole firm. It is thought to be considering both an outright sale and retaining some kind of stake in the business. Any deal is likely to take until at least the end of this year to complete.
Next week Tesco will reveal its latest sales performance at its annual shareholder meeting in London. It is also likely to face renewed scrutiny of its dealings with suppliers when the grocery market watchdog holds its annual conference on Monday.