Coverage: Apollo to buy Fresh Market for $1.4B

Private equity firm Apollo Global Management is acquiring grocery chain Fresh Market in a deal worth $1.36 billion, causing the Greensboro, North Carolina-based company’s shares to rise 23 percent in Monday trading.

Liz Moyer of the New York Times points out that Fresh Market’s founders aren’t selling their shares but will put their investment into Apollo funds:

Ray Berry, the chain’s founder, and his son Brett Berry, who collectively own 9.8 percent of the shares, won’t sell any of their shares in the deal but instead roll their investment into the Apollo funds. The deal, announced on Monday, includes a co-investment from George Golleher, the former chief executive of Smart & Final and Ralphs Grocery Company/Food-4-Less.

Specialty grocers have been pressured by national chains like Walmart and Kroger and such rivals as Whole Foods and Trader Joe’s. Two years ago, the private equity firm Cerberus Capital Management struck a $9 billion deal to acquire the grocery chain Safeway, which it merged with Albertsons.

Fresh Market, which is based in Greensboro, N.C., operates 186 stores in 26 states. Apollo has a track record of owning such retailers. It previously owned Sprouts Farmers Market, an organic food specialty chain, Hostess Brands, General Nutrition Centers and Smart & Final.

Kevin McCoy of USA Today reports that the chain faced growing competition from Whole Foods:

The move came as The Fresh Market battled competition from Whole Foods and other specialty groceries, and declining same-store sales.

“We believe there is a significant opportunity to enhance the brand, merchandise offering and price-value combination to make The Fresh Market a primary destination for food shoppers, while at the same time being committed to social responsibility through partnerships with local vendors and communities,” said Andrew Jhawar, an Apollo senior partner and head of the buyout firm’s retail and consumer group.

The transaction has fully committed financing in place, Apollo said. The deal is conditioned on at least 50% of the company’s shares being tendered in the offering. The companies expect the transaction to close during the second quarter of 2016.

Under the deal terms, The Fresh Market may actively seek alternative acquisition proposals until midnight on April 1. There can be no assurance that the solicitations will produce a higher offer, the grocery chain said.

Phil Serafino of Bloomberg News adds that Apollo has owned grocery store chains in the past:

The deal marks a return to the grocery business for Apollo, which has previously owned Sprouts Farmers Market Inc. and Smart & Final Stores Inc. For Fresh Market, the buyout may help it make the investments needed to reignite its sale growth, which has slowed since its 2010 IPO amid mounting competition from larger rivals such as Kroger Co. and Wal-Mart Stores Inc.

Reports surfaced in October that Fresh Market had turned to Apollo for help exploring a buyout, and Kroger had also been mentioned as a potential suitor.

Fresh Market’s board conducted an “open and thorough review” of strategic alternatives before agreeing to the sale, according to the statement. Still, the Greensboro, North Carolina-based company can solicit better offers for 21 days after signing a definitive deal, the companies said.