Apollo to Buy Smart & Final for $1.1B

To the extent repeat purchases are a signal of success in food retail, Smart & Final can feel good about its next owner. Apollo Global Management, which sold the retailer seven years ago, is buying it back again.

Affiliates of the fund have reached a definitive merger agreement with the retailer to acquire all of its outstanding shares at a price of $6.50 per share, or $1.12 billion. The price represents a 25% premium on Smart & Final’s trading price over the past 24 trading days.

The proposed deal has the support of Ares Capital Management, the private equity firm which is Smart & Final’s largest shareholder. Ares bought the chain from Apollo in 2012 for $975 million and later spun a portion to the New York Stock Exchange.

The possibility that Smart & Final could be for sale was reported earlier this year, when reports said it had hired investment bankers to look into strategic alternatives. Sources told WGB then that a strategic buyer might be difficult to find given Smart & Final’s unique positioning.

Commerce, Calif.-based Smart & Final operates nonmembership warehouse stores under the Smart & Final and Smart & Final Extra banners, as well as a foodservice chain called Cash & Carry Smart Foodservice. As of Dec. 30, 2018, the end of its fiscal year, Smart & Final operated 326 stores in western states, including 201 Extra stores; 59 legacy Smart & Final stores; and 66 Smart Foodservice units. The company also operates 15 stores in Mexico as part of a joint venture.

Sales totaled $4.7 billion last year.

CEO Dave Hirz said the investment from Apollo would help to “accelerate our existing strategy in a dynamic industry environment.”

Apollo has had success in food retailing investments before including a stint supporting Sprouts Farmers Markets as it expanded from its West Coast roots across the Southwest and to the East Coast. Apollo also owns The Fresh Market.

“This transaction is a testament to the strength of Smart & Final’s franchise, the quality of our store banners and the talent and expertise of our people. Under the ownership of the Apollo Funds, Smart & Final will benefit from Apollo's strategic guidance, which will help us accelerate our existing strategy in a dynamic industry environment,” Hirz said. “We are excited about the future as we embark on a new chapter in our almost 150-year history, with a strategic partner that understands our strengths, culture and customer-centric philosophy. We would like to thank Ares Management for its partnership and support in helping us grow our business to where we are today.”

Andrew Jhawar, senior partner and head of the consumer and retail group for Apollo said, “We are very excited for our funds to be re-acquiring Smart & Final and expect to leverage Apollo’s deep expertise and history of success in food retail to support the company as it embarks on its next chapter. The unique differentiation and strong value proposition of both the Smart & Final and Smart Foodservice banners are evident to us and we welcome the opportunity to augment and enhance the experience for the company’s household and business customers. We look forward to working with the management team as well as the over 12,000 team members to capitalize on the company’s position in the marketplace.”