Exclusive: Food retailer Smart & Final explores sale - sources

February 4, 2019 11:31 AM EST

FILE PHOTO - A Smart & Final Stores Inc sign is pictured at one of its stores in Encinitas California September 23, 2014. REUTERS/Mike Blake

By Harry Brumpton and Joshua Franklin

(Reuters) - Smart & Final Stores Inc (NYSE: SFS), a U.S. food retailer controlled by private equity firm Ares Management Corp (NYSE: ARES), is exploring options that include a sale of the company, according to people familiar with the matter.

An outright sale would allow Ares to cash out on its majority stake in Smart & Final. It acquired the company in 2012 from fellow buyout firm Apollo Global Management LLC (NYSE: APO) for $975 million, including debt.

Ares took Smart & Final public in 2014 at a price of $12 per share. The shares have lost close to half their value since then, as the company has struggled in a tough environment for brick-and-mortar retailers.

Smart & Final, based in Commerce, California, is working with investment banks on a sale process, and has reached out to private equity firms that could be potential acquirers, the sources said on Monday.

There is no certainty Smart & Final will ultimately agree on a sale, the sources cautioned, requesting anonymity as they were not authorized to speak publicly about the deliberations.

Ares declined to comment. A representative for Smart & Final said the company is focused on executing its strategic plan and that its longstanding policy is not to comment on market rumors or speculation.

Smart & Final shares rose 5.3 percent at $6.30, giving the company a market capitalization of about $500 million. Smart & Final had long-term debt of $619 million as of Oct. 7.

Smart & Final operated 324 grocery and foodservice stores in California, Oregon, Washington, Arizona, Nevada, Idaho, Montana and Utah as of Oct. 7, with an additional 15 stores in Northwestern Mexico operated through a joint venture.

The company reported adjusted earnings before interest, taxes, depreciation and amortization of $62.3 million for the three months ended Oct. 7, down 1 percent over the same period in 2017.

Smart & Final has been facing increasing competition both from direct rivals and e-commerce firms. Inc (NASDAQ: AMZN) acquired Whole Foods Market Inc for $13.7 billion in 2017.

Deep-pocketed international entrants to the U.S. market such as Lidl and Ahold Delhaize (NYSE: AD) as well as discount retailers such as Walmart Inc (NYSE: WMT) and Dollar General Corp (NYSE: DG), have also been squeezing Smart & Final's profitability.

(Reporting by Harry Brumpton and Joshua Franklin in New York; Editing by Jeffrey Benkoe)

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