Private Investment Group to Acquire Smart & Final

MARK HAMSTRA

LOS ANGELES — Smart & Final here said last week it has reached an agreement to be acquired by an affiliate of Apollo management in the latest in a series of acquisitions of public food retailers by private-equity firms.

Apollo, based in Purchase, N.Y., agreed to pay $22 per share for the chain, which operates 254 warehouse-style food stores serving both consumers and food-service customers. Including debt, the purchase price was $812.9 million. Smart & Final said it expects the acquisition to close in the second quarter of this year.

“I think Apollo is excited about this opportunity,” Etienne Snollaerts, president and chief executive officer, Smart & Final, told SN. “We have good growth plans for the future of the company, for both the Smart & Final format and the Cash & Carry format in the Northwest, which now has three stores in the Los Angeles area. There is a huge opportunity to grow both those banners in our existing areas.”

Smart & Final had said early last year that it was seeking strategic alternatives for the chain at the same time that its majority owner, French retailer Groupe Casino, said it would evaluate all of its holdings to look for ways to reduce debt. Apollo's purchase agreement includes the 55% of the Smart & Final shares owned by Groupe Casino.

Snollaerts said several entities had expressed interest in Smart & Final during the sale process, which was orchestrated by Goldman Sachs, but he declined to identify any of the other bidders.

He said Apollo, which has offices in both New York and Los Angeles, was very familiar with the Smart & Final banner.

“They have people in their Los Angles office who know the stores, and go there every Friday night to stock up for the weekend, just like a lot of us do,” Snollaerts said.

Karen Short, an analyst for Friedman Billings Ramsey, New York, said the $22 per share price is higher than what she expected.

“I would be shocked if someone came in with a higher offer,” she said.

She said the change in ownership should give the chain some “fresh eyes” to look at opportunities for improving the business.

“It gives them access to people who could help them manage the business better,” she said, suggesting that Smart & Final could stand to be more consistent across its stores. “There is a level of discipline that has been lacking.”

Jonathan Ziegler, an analyst with Dutton Associates, El Dorado Hills, Calif., agreed that the purchase price was “generous.”

“This is something that I think should have happened some time ago,” he told SN. “Smart & Final had the disadvantages of being a public company but not really any of the advantages. Because of the Casino ownership, the shares were not liquid and did not attract a lot of institutional investors.”

He said he believes Apollo will bring in more capital from outside to help grow the chain.

“This is going to be basically to grow the company, so I think it will go public again,” he said.

Smart & Final might have had more success as a private company in its previous failed effort to expand in Florida, he said, without the short-term pressures of growing quarterly earnings.

Apollo has experience as an investor in other retail companies, including Ralphs Grocery Co. in Los Angeles and Dominick's in Chicago, which are now part of Kroger Co. and Safeway, respectively. Apollo also was said to be part of an unsuccessful bid to acquire Albertsons last year.

“We have long admired the unique specialty food retail position of the Smart & Final and Smart Foodservice Cash & Carry stores,” said Andy Jhawar, senior partner, Apollo, in a prepared release. “The company's position in the marketplace will serve as a strong platform for continued evolution and future growth of its business model.”

Snollaerts, who came to Smart & Final from Groupe Casino in 2003, said he has no plans to return to the parent company following the sale.

“I am personally very excited about this news,” he said. “I am very close to this company and would like to play a role in it.”

Smart & Final operates both its namesake banner, which is open to the public, and the Cash & Carry format, which has 53 locations and is open to businesses only. In the fourth quarter that ended Dec. 31, the company said net income slid 45%, to about $5.1 million, on a sales gain of 7.6%, to $491.4 million. For the year, net income was down 2.5%, to $20.8 million, on a sales gain of about 5.1%, to $2.1 billion.