Foodservice distributor US Foods Holding Corp. plans to buy Smart Foodservice Warehouse Stores, formerly the cash-and-carry format of Smart & Final Stores, in a $970 million cash deal.
Under the deal, announced today, Portland, Ore.-based Smart Foodservice will be acquired from funds managed by affiliates of private-equity firm Apollo Global Management, which last April unveiled a $1.12 billion buyout deal to take Smart & Final private. At the time, published reports said Apollo planned to separate the Smart & Final retail grocery and Smart Foodservice cash-and-carry businesses.
On Friday, Rosemont, Ill.-based US Foods said the acquisition excludes Smart & Final, which was separated from Smart Foodservice before the agreement with Apollo. Plans call for Smart Foodservice to retain its leadership team and operate as a separate business unit within US Foods.
Derek Jones, president of Smart Foodservice Warehouse Stores. (Photo courtesy of Smart Foodservice)
"The management team at Smart Foodservice very much looks forward to working with the team at US Foods in accelerating our growth in the attractive cash and carry foodservice market,” Smart Foodservice President Derek Jones said in a statement. “US Foods is an ideal partner for Smart Foodservice, and we are excited about the synergistic and strategic benefits of the combination.”
Smart Foodservice has approximately 900 employees and operates 70 small-format stores in California, Washington, Oregon, Idaho, Nevada, Utah and Montana, serving small and midsize restaurants and other food businesses. In 2019, the 45-year-old chain totaled sales of about $1.1 billion.
The nation’s second-largest foodservice distributor, US Foods described the cash-and-carry channel as a burgeoning market segment, with sales of $17 billion and 4% to 5% annual growth. The company noted that the addition of Smart Foodservice’s smaller cash-and-carry outlets — offering about 8,000 SKUs each — will enable it to better reach independent restaurant operators who prefer a self-serve model, as well as provide another growth channel for current customers.
“As we continue to expand our multichannel strategy, we know customers — particularly independent restaurants — increasingly use cash and carry as a convenient, cost-effective purchasing option,” according to US Foods Chairman and CEO Pietro Satriano. “With an established footprint and a consistent record of profitable growth, Smart Foodservice will complement our CHEF’STORE cash-and-carry model and provide a platform to significantly accelerate our presence in this attractive, growing channel.”
Though a smaller part of Smart & Final’s business, the foodservice format was a growth driver. The Commerce, Calif.-based retailer became a private company last June, and in its last public, full-year earnings announcement reported Smart Foodservice’s net sales up 5.6% to $1.07 billion for fiscal 2018, with same-store sales rising 3.6%. Smart & Final stores had 2018 net sales of $3.67 billion, a 3.2% gain, while same-store sales inched up 0.5%.
Smart Foodservice stores offer a “no-frills” warehouse format that mainly targets business customers, such as restaurants, caterers and other foodservice providers. Led by the Extra! format, Smart & Final stores blend a wholesale club-style store (but no membership fee) with a traditional supermarket in a one-stop shop.
“We are pleased that Smart Foodservice will be able to thrive with a strong complementary partner in US Foods,” stated Andrew Jhawar, senior partner at Apollo and head of its Consumer & Retail industry group. “We would like to thank Derek Jones and all of the employees at Smart Foodservice for their dedication in building a highly differentiated business in the cash-and-carry industry, and we know the company will be in great hands with its new owners.”
New York-based Apollo had been an owner of Smart & Final before the 2019 buyout. Prior to that transaction, Smart & Final was majority-owned by private-equity firm Ares Management. Los Angeles-based Ares had 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.
US Foods and Apollo didn’t provide a timetable for the completion of the Smart Foodservice transaction but said the deal would be finalized pending regulatory approval and other customary closing conditions.
“While timing clearly isn’t ideal, given today’s COVID-19 environment and fears of it hurting restaurants, we view US Foods’ purchase of Smart & Final Stores’ cash-and-carry business as a sound long-term investment, offering outsized growth and margin accretion and greater ROIC [return on invested capital],” Jefferies analyst Christopher Mandeville said in a research note on Friday.