TALKS ON the deal that yesterday led to Musgrave agreeing to take over troubled grocery chain Superquinn began in earnest last week, but the negotiations were really the latest staging post in a process that got under way earlier this year.

Superquinn owes three banks – AIB, Bank of Ireland and National Irish Bank, €275 million, which is secured against the chain’s properties.

When receivers Kieran Wallace and Eamonn Richardson of KPMG moved in on Monday night, it also had €150 million in other obligations, including about €100 million to preferential creditors, and a further €51 million to suppliers.

The company’s big problem is the property debt, which is a consequence of the Select Retail consortium’s €450 million purchase of the business from its founder Feargal Quinn and his family in January 2005.

Another difficulty it faced was that the business, whose sales are estimated at €500 million a year, did not have a strong cash flow and was trading in a tough environment.

In December, it appointed a new chief executive, Andrew Street. At the start of this year, he began implementing changes designed to generate more cash from the chain.

In tandem with this, the company began a formal process designed to find either a new investor or a buyer that could inject new cash into the business.

Musgrave’s, a wholesaler that owns a series of supermarket and convenience store franchises, was, along with British and international companies, one of a number of candidates which ran the rule over Superquinn at that stage.

However, its liabilities made the business so unattractive that nobody was prepared to do a deal, or at least not while it was carrying the burden of big property debts.

That meant the company was running out of options. In the end, its banks decided a receivership offered them the best way of separating the trading business from the property loans, and selling it with the aim of recovering some of their debt.

The other option considered was examinership. This would have involved Superquinn getting High Court protection from its creditors, meaning the banks would have lost any real control over what happened next.

Both Mr Street and Musgrave chief executive Chris Martin confirmed yesterday that preliminary talks between Musgrave, the banks and KPMG, which was about to be appointed receiver, opened late last week.

Musgrave had already done the necessary ground work, knew what it was getting into and was positioned to make a realistic offer for the stores and distribution.

Once the receivers moved in, the parties were able to complete the deal quickly. Mr Martin said there was no real haggling and that all sides wanted to keep the process as simple as possible.

Mr Wallace pointed out yesterday that the speed at which the deal was done means that creditors and other stakeholders will get the best return possible, as a lengthy process runs the risk of wasting valuable resources.

“It was the best deal that could be done,” he said.