Buyout firm Apollo to buy Smart & Final Stores for $1.1 billion

Reuters

Published Apr 16, 2019 06:39PM ET

Buyout firm Apollo to buy Smart & Final Stores for $1.1 billion

By Harry Brumpton and Greg Roumeliotis

(Reuters) - Apollo Global Management LLC said on Tuesday it will acquire Smart & Final Stores Inc for about $1.1 billion, including debt, the second time the private equity firm will own the U.S. food retailer.

The deal comes after Apollo sold Smart & Final to Ares Management Corp, another buyout firm, in 2012 for $975 million, including debt. It is Apollo's latest bet on the brick-and-mortar grocery sector, even after its last acquisition in the space, its $1.4 billion leveraged buyout of Fresh Market Inc in 2016, has soured amid increasing competition.

Apollo will pay $6.50 per share in cash for Smart & Final, a 21 percent premium to its closing share price on Tuesday. The shares soared in after-hours trading after Reuters reported on the deal ahead of the announcement.

Smart & Final operates 324 grocery and food service stores in California, Oregon, Washington, Arizona, Nevada, Idaho, Montana and Utah.

Ares took Smart & Final public in 2014 at a price of $12 per share. The shares have lost close to half their value since then, as the company struggled in a tough environment for brick-and-mortar retailers. Ares now owns close to 60 percent of the company.

Based in Commerce, California, Smart & Final faces competition from direct rivals and e-commerce firms. Amazon.com Inc (NASDAQ:AMZN) acquired Whole Foods Market Inc (NASDAQ:WFM) for $13.7 billion in 2017.

Deep-pocketed international entrants to the U.S. market such as Lidl and Ahold Delhaize, as well as discount retailers such as Walmart (NYSE:WMT) Inc and Dollar General Corp (NYSE:DG), have also been squeezing Smart & Final's profitability.

Apollo plans to split Smart & Final into two operationally separate units, because of their different business model, according to people familiar with the matter.

One unit will comprise the 257 stores operated under the Smart & Final banner, which allow consumers to shop at a discount without a membership fee.

The second unit will comprise 67 stores under the company's Smart Foodservice banner, which sell goods in a no-frills warehouse format to other food businesses such as restaurants and caterers.

Apollo's previous acquisition in the grocery sector, the Fresh Market, has struggled amid a plethora of organic and natural food offerings by rivals. Its bonds trade well below their par value, and credit ratings agency Moody's Investors Service has called its capital structure "unsustainable".