The European Walmart nobody's talking about
The meteoric rise of European-born Action supermarkets
A mighty Dutch Pancake
The Dutch are often stereotyped as tall, blonde, stylish, and undoubtedly masters of the infamous Dutch mini pancakes. But back in the 90s, Gerard Deen and Rob Wagemaker cooked up an idea even sweeter than the beloved pastry their nation adopted: a supermarket chain called Action.
In 2011, 3i Group, a FTSE100 private equity firm based in London, secured the deal of a lifetime when they acquired a majority stake in Action for a couple hundred million. Fast forward 14 years, and Action’s valuation has just nudged the £20 billion mark, becoming the most impressive European-born retailer of the last half-century. The chain's success now rewards 3i with over £1 billion in combined dividends per year.
Today, 3i is the UK’s most profitable public company per employee, earning six times more profit per head than its closest contender, BHP. But the question remains: How far can Action go? And what do 300 employees do with £1 billion a year?
Part one: let is compound
3i CEO Simon Borrows, who also serves as chairman of Action, has undoubtedly sparked envy across the global private equity community. While deal flow has slowed since 2022 and rising interest rates have allowed banks to sit on cash and play it safe, 3i has reaped the rewards of its "Hail Mary" acquisition, cocktail in hand, cigar in the other. The Dutch powerhouse continues to dominate Europe with nearly 3,000 stores, driving 3i’s stock price up an impressive 244% over the last five years.
When Borrows joined in 2011, he took a pragmatic approach. His first move at 3i was to send half the team packing, aiming to streamline operations and form a leaner P&L (read more). Lancashire-educated (Rossall School, like my dad, as I discovered), Borrows is known as a logical decision-maker across his roles in banking. He seems to adhere to fundamental principles of investing, steering clear of meme coins and remaining skeptical of venture psychology. At least, that’s my thesis. But what gives it away?
During his tenure at 3i, Borrows has taken several steps that suggest there are no plans to sell their unicorn holding anytime soon. In fact, 3i has been systematically buying back carry from members of the deal team, including some who left the company over a decade ago, pocketing tens of millions in the process. Additionally, 3i is reinvesting its dividends into Action, steadily increasing its stake in the business. Meanwhile, Borrows has been reinvesting his personal gains back into 3i, allowing his wealth to compound even further, leaving Borrows with a lot of personal wealth tied to the business. If you ask me, Borrows and his loyal followers aren’t going anywhere anytime soon.
Action now accounts for over 75% of 3i’s portfolio value, and as it continues its rapid takeover of Europe, the question I’m asking is: what’s next for 3i, and is there a part two to this story that’s as glorious as the first?
Part two: let it compound some more
It’s 1962, and I’ve just lent Sam Walton $50,000 to open the first Walmart in Rogers, Arkansas. Fast forward ten years, and Walmart goes public on the NYSE - now I’m a millionaire. Early investors in Walmart made a fortune from its IPO, but if you had a time machine that showed you what Walmart would become in 20-30 years, would you hold your position?
Much like Walmart, Action thrives by offering high-value, low-cost products and relies on regional distributors and a highly replicable operational system. What’s interesting about Action, is they purposely have a designed a disorganised store structure for visitors. The CEO explains how renovation and reorganization led to lower impulse purchases from shoppers (read more), and how Action’s model encourages shoppers to '“get lost” instead of drifting to the middle. This approach has allowed the company to open one new store every day across Europe for the last few years, with aggressive plans to continue this expansion in 2025.
Investors are now beginning to compare the growth of Action to that of Walmart, particularly as Walmart’s European counterpart has shown remarkable resilience during downturns. So if you’re an Action investor with a telescope into the future, and Walmart’s your baseline comparison, what would you do? Only this time, you’re getting 5x your money back on your initial investment per year! That’s a question shareholders will be starting to wonder, as Action continues to carry what’s a fairly nominal portfolio of holdings otherwise.
The Super Bowl
A Hail Mary is not just about the touchdown - plenty of players get lucky in their careers. Ultimately, it’s about winning Super Bowls that define a legacy, and I think Simon Borrows could be hunting for that exit by rebranding 3i as a retailer.
Could 3i, by steadily increasing its stake in Action, be positioning itself for a majority share in a future global IPO? I don’t think the idea is off the table. In the meantime, the deal team will need to dig deep for their next big score to balance out what is currently a very top-heavy portfolio.
Oh, this is why you were asking. I'm so out of it.