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Smart & Final agrees to $1.12 billion buyout

Warehouse-style grocer to go private again under former owner Apollo

After buzz earlier this year about a possible sale, Smart & Final Stores Inc. has agreed to be acquired by private equity firm Apollo Global Management LLC in a deal valued at $1.12 billion.

The companies said late Tuesday that, under the agreement, Apollo plans to buy Smart & Final for $6.50 in cash per share of outstanding common stock, a 25% premium over the Commerce, Calif.-based retailer’s closing share price since reporting fiscal 2018 earnings on March 13.

In February, Reuters had reported that Smart & Final was exploring strategic options, including a potential sale, and had contacted private equity firms as possible suitors.

Smart & Final is majority-owned by private equity firm Ares Management, which holds a roughly 58% stake in the company. Los Angeles-based Ares said Tuesday that it supports the transaction with Apollo, a previous owner of Smart & Final.

Ares acquired its majority stake in Smart & Final from Apollo in November 2012 for $975 million. About two years later, the retailer completed an initial public offering at $12 per share. Funds managed by affiliates of Apollo had owned Smart & Final from 2007 through the sale of the ownership stake to Ares.

Shares of Smart & Final were up about 20%, or $1.10, to $6.49 just before noon trading on Wednesday.

David_Hirz_Smart_Final_CEO.jpg“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,” Smart & Final CEO David Hirz, left, said in a statement. “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.”

Smart & Final and Apollo didn’t disclose leadership plans for the warehouse-style grocery chain in announcing the deal. The companies expect to close the transaction by the end of the 2019 third quarter, pending the completion of the cash tender offer and shareholder and regulatory approval.

“We are pleased to fully support this transaction and we would like to thank the Smart & Final management team for its strong commitment and execution over the past seven years," said Smart & Final Chairman David Kaplan, co-founder of Ares. "We wish the management team and employees continued success under new ownership.”

For its 2018 fiscal year ended Dec. 30, Smart & Final saw net sales rise 3.7% to $4.74 billion, with same-store sales up 1.2%. The company reported a net loss of $112.2 million, or $1.54 per diluted share, down from a net loss of $138.9 million, or $1.92 per diluted share, in 2017.

Smart & Final operated 326 stores overall at the close of fiscal 2018, including 201 Smart & Final Extra! stores, 59 legacy Smart & Final stores and 66 Smart Foodservice Warehouse stores.

“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,” said Andrew Jhawar, senior partner and head of the consumer and retail group at New York-based Apollo. “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.”

Though a smaller part of the business, the foodservice format has been a growth driver. Net sales for the Smart Foodservice Warehouse banner grew 5.6% to $1.07 billion in fiscal 2018, while comparable-store sales up 3.6%. Smart & Final stores had net sales of $3.67 billion, up 3.2% year over year, with same-store sales inching up 0.5%.

During fiscal 2019, Smart & Final plans to open one Smart & Final Extra! store and four Smart Foodservice Warehouse stores and to relocate one or two Smart & Final stores.

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