SN Year in Review 2007: Credit Woes Slow Dealmaking Pace

JON SPRINGER

DEAL OR NO DEAL?

That was the question the industry was asking itself after what had been shaping up to be a frothy year for consolidation fizzled by midsummer.

While some strategic partners found one another, and Tops Markets and U.S. Foodservice went in private equity-backed deals, the buyouts that didn't happen said much about the year as well. Like the housing market in places like Florida and Las Vegas, it suddenly appeared to get difficult to buy and sell supermarkets in 2007.

At the heart of the slowdown was a chill put into private equity buyers when the credit markets tightened as a result of the subprime mortgage crisis. The buyout market until then was fueled by easy access to borrowed money, but that availability evaporated quickly, as evidenced when the consortium of private buyers that purchased U.S. Foodservice in May, intending to raise 69% of the $7.1 billion price in debt, pulled a bond offering in July that one analyst called “too risky, too aggressive and too highly leveraged.”

With the debt markets tightened, scenarios that had seemed plausible in the first half of the year — rumors of a private equity-led buyout of Kroger made the rounds in May — were laughable in the second half. And chains like Bi-Lo, actively shopped by its private owners earlier in the year, had “For Sale” signs taken down in October.

Other moves widely anticipated by observers simply did not come to pass. Roundy's Supermarkets, the Milwaukee-based retailer controlled by Willard Stein & Partners, had long been considered a potential seller, but a lack of activity there by year-end had the chain looking at potentially making acquisitions instead. A Willard Stein spokesman told SN the chain was considering either outcome, but no activity had occurred.