Tesco and the Co-operative Group’s shopping sprees last week have put TM Retail in the spotlight as the UK’s largest remaining independent convenience chain. But with T&S and Alldays snapped up, the obvious question is how long will TM hold onto its independent status?

The chain, which operates 323 c-stores, is 75% owned by venture capitalists, a breed not renowned for hanging about when a money-making opportunity presents itself.

Investors HSBC Ventures UK and Electra Partners both have 30% stakes through TM’s holding company Thistledove. Management have a 25% stake, and Legal and General has a 15% stake.

Neither HSBC nor Electra is making bones about the fact that TM Retail’s portfolio of 1,221stores - which are mostly CTNs - is suddenly hot property.

A source at Electra said: “TM is the largest independent around. Electra or anyone else would want to discuss an exit.”

And HSBC Ventures director Mark Dunfoy points out that both HSBC and Electra have held their investments since 1995.

“That’s an unusually long time for a venture capitalist. It would usually look to pass its investment on to someone else after a couple of years,” he says. “The industry is consolidating. TM is the last significant chain of independent c-stores. They are more attractive than they were.”

But Dunfoy stresses: “We are not making any comment on TM beyond what the company itself is saying. But I can say we have had approaches about c-stores in the recent past from more than one party.”

Less attractive CTNs

So what does TM Retail itself have to say? “We are not commenting on that market speculation,” insists TM’s finance director Russell Cox. But he adds: “The T&S acquisition by Tesco is a very interesting development in the market, the interest in our business is not surprising. It leaves us as the largest c-store operator.”

As well as the c-stores, TM Retail has a diverse portfolio of smaller, less attractive CTN stores across the UK - and a total of five fascias.But who would want to get their hands on this diverse mix, particularly when rivals suggest the company might be having a hard time growing sales and profit?

Thistledove is due to file fresh figures at Companies House on Monday, which will no doubt be perused closely by the industry if TM Retail is discreetly taken to market by its financial backers. But figures from the company for the 39 weeks to August 2002 show turnover was £512.6m, up from £497.9m in the same period in 2001. Pre-tax profit was £16.6m down from £18.7m.

Retailers from M&S to Budgens are now rumoured to be lining up as potential purchasers. But those two chains, at least, are denying any interest.
Musgrave UK executive chairman Eoin McGettigan says: “There is no truth in the rumour at all”. And Marks and Spencer chief executive Roger Holmes tells us he has no plans to extend the Simply Food portfolio through the acquisition of TM Retail.

“There would be no sense in making an acquisition like that. We don’t compete directly with corner shops. Simply Food is a meal solutions store. The Tesco and Co-operative Group activity doesn’t change Marks and Spencer’s strategy, but it does reinforce the importance of small stores.”

With Safeway and Sainsbury also eyeing up convenience stores, when the dust of this latest round of consolidation has cleared, TM’s backers may soon find their investment in the sector has finally paid off.