Roundy's Back Up For Sale

ELLIOT ZWIEBACH

MILWAUKEE — Roundy's Supermarkets here is up for sale — again.

Four years after the chain's Chicago-based owners, Willis Stein & Partners, tried to exit their investment, industry sources told SN the firm has hired Moelis & Co., a New York-based investment bank, along with Credit Suisse, to conduct an auction for the chain.

Roundy's could not be reached for comment; officials at Moelis declined comment.

Roundy's operates 155 stores: 96 under the Pick 'n Save banner in Wisconsin (including three upscale Metro Markets); 26 Copps Food Stores, also in Wisconsin; 32 Rainbow Foods stores in Minnesota; and a single unit of Mariano's Fresh Market in Arlington Heights, Ill., just outside Chicago.

Willis Stein acquired the company in 2002 for approximately $800 million and oversaw its conversion from a member-owned cooperative to a retail chain.

Observers said Willis Stein will likely set an asking price of approximately $1.2 billion — a multiple six times Roundy's reported EBITDA of $200 million. At the time the company contemplated selling the chain in 2007 — just before the stock market collapsed — it was reportedly seeking a price estimated at $2 billion, observers pointed out.

“In the past, Willis Stein's value expectations were rather lofty,” one industry source told SN, “but it appears they are coming to this process with more reasonable expectations.

“They've owned Roundy's for nine years, and they've made a fair amount of money in that time with dividend recapitalizations,” the source added. “It would appear they now believe they can achieve a good return with a multiple north of six times EBITDA.”

An industry analyst told SN a multiple of six to eight times EBITDA “would make sense in a normal market, but the market right now is highly sensitive to a company's trends, and if a company is troubled, the valuation can go way below six times EBITDA.”

Local sources said Roundy's Pick 'n Save stores in Wisconsin have faced increasing competition from Whole Foods Market on the high end and Wal-Mart Stores, Aldi and Woodman's on the low end.

According to one observer, while it's possible some other private equity firm could take a look at Roundy's, “a strategic buyer is more likely, and it might be encouraged by that fact Wal-Mart is under-represented in Milwaukee and Madison.”

Potential buyers cited by industry sources include Kroger Co., Cincinnati; Schnuck Markets, St. Louis; Safeway-owned Dominick's; Minneapolis-based Supervalu; and Amsterdam-based Ahold.

It's also possible the Mariano's Fresh Market in Chicago could be spun off and sold to Bob Mariano, chairman and chief executive officer of Roundy's, who is also a former president of Dominick's.

Representatives of Kroger, Safeway and Ahold could not be reached for comment. A Schnuck spokesman declined comment, and a Supervalu spokesman said the company does not comment on speculation. Mariano could not be reached for comment.

According to one observer, “It's possible Mariano could get together with some investors to buy the whole company or, if someone else buys the company, he could make a deal to acquire only the Chicago part of the business.”

Another industry source expressed more certainty that Mariano would be part of any deal. “Bob has such a huge passion for that [Chicago-area] store and, having spent 28 years with the Dominick's organization, he has a huge passion for the Chicago market.”

The analyst told SN he doubts Kroger or Dominick's would be interested in Roundy's “because both have been more interested in making in-market acquisitions for the last few years.”

He said he sees Schnucks as a possible buyer, and he also said he believes Ahold could be interested in expanding its U.S. holdings beyond the East Coast, even though it would mean jumping over a couple of states to get to Roundy's.