Apollo to sell Smart & Final for $620m

Apollo Global Management has agreed to sell Smart & Final to Grupo Comercial Chedraui for about $620 million.

Apollo Global Management has agreed to sell Smart & Final to Grupo Comercial Chedraui for about $620 million. Smart & Final is a warehouse store for household and business customers.

PRESS RELEASE

MEXICO CITY & COMMERCE, Calif.–(BUSINESS WIRE)–Grupo Comercial Chedraui, S.A.B. de C.V. (“GCC”) (BMV:CHDRAUI) announced today that its subsidiary, Bodega Latina Corporation (“BLC”), has entered into a definitive agreement to acquire Smart & Final Holdings, Inc. (“Smart & Final”) from funds managed by affiliates of Apollo Global Management, Inc. (NYSE:APO) (“Apollo”) for approximately U.S.$620 million, including the assumption of certain indebtedness.

Smart & Final, the smaller, faster grocery warehouse store for household and business customers, provides one-stop shopping with an assortment of both club and traditionally sized groceries, fresh foods and supplies without a paid membership and at great values. Celebrating its 150th anniversary in 2021 and headquartered in Commerce, Calif., Smart & Final operates more than 250 stores under two banners: Smart & Final and Smart & Final Extra!, in California, Arizona and Nevada. There are an additional 16 stores in Northwestern Mexico operated through a joint venture. Smart & Final stores service both household and business customers, representing approximately 70% and 30% of revenues, respectively. For the fiscal year ended January 3, 2021, Smart & Final generated U.S. GAAP revenues of approximately U.S.$4.1 billion and Adjusted EBITDA of U.S.$167 million.

José Antonio Chedraui Eguía, CEO of Chedraui, said, “We are excited about the combination of Grupo Comercial Chedraui and Bodega Latina with Smart & Final, which further scales and expands our U.S. footprint. This acquisition is aligned with our long-term strategy to find financially attractive and accretive opportunities, while maintaining consolidated indebtedness at prudent ranges. With financing for the transaction occurring at the BLC level, GCC retains ample financial flexibility for continued growth in Mexico as well. More fundamentally, this transaction reflects our continued commitment to serve customers, families and businesses in both the U.S. and Mexico. It benefits stakeholders in both countries, including our employees, around 40,000 in Mexico and over 13,000 in the U.S., suppliers, vendors, customers and their families. As just one example, via our money remittance partnerships and network of stores, we currently help customers looking to provide support when needed to family living elsewhere; this transaction will only strengthen our ability to provide that type of support and value to many more customers and families.”

“Smart & Final, with a unique go-to-market and operating strategy, is an attractive fit that is aligned with our business strategy in the U.S., utilizing differentiated formats to focus on growing, but underserved markets,” said Carlos Smith, President and CEO of Bodega Latina. “With a brand that resonates with consumers, geographic fit in key markets, and a consistent record of profitable growth, Smart & Final will complement the platform we’ve built with El Super and Fiesta. We look forward to welcoming Smart & Final’s talented team of over 11,000 employees in working together to create a premier food retail platform in our markets.”

David Hirz, Smart & Final’s CEO, said, “The transaction is a testament to the strength of Smart & Final’s franchise, the quality of our store banners and the talent and expertise that support the business. Under the ownership of Grupo Comercial Chedraui and Bodega Latina, Smart & Final will benefit from their guidance given their recognized and established position in the food retail space while contributing our own best practices and experience. Together we will further accelerate our collective growth. We are excited about the future as we embark on a new chapter in our history with a partner that is aligned and understands our strengths, culture and customer-centric philosophy. We would like to thank Apollo for its partnership and support in helping us grow our business to where we are today.”

“We are pleased to have supported the evolution of Smart & Final through two investment cycles since 2007 and believe that the combination with Grupo Chedraui will set the stage for continued growth of Smart & Final,” said Andrew Jhawar, Private Equity Senior Partner at Apollo. “We thank Dave Hirz, Rick Phegley, Scott Drew, and the entire Smart & Final team for their leadership.”

Compelling Strategic and Financial Benefits
Continues GCC’s strategic objective to grow in the U.S.
– Smart & Final further bolsters GCC’s U.S. footprint and strategic capabilities
Broadens and diversifies GCC’s customer base
– Smart & Final has a diverse customer demographic composition, including business customers
Adds a format with a demonstrated track record of growth and strong performance through COVID
– Attractive internal growth initiatives and opportunities in existing and potentially new geographies
Creates a scaled and differentiated food retail platform in North America
– The combination creates a leading diversified chain in Mexico and a multi-format food retail platform in the U.S., with consolidated pro forma sales in excess of U.S.$11 billion
Accretive transaction
– Expected to be accretive to GCC’s Adjusted Diluted EPS in the first full year of operations, excluding purchase accounting adjustments
Limited integration required
– Smart & Final will retain its existing management team to continue to operate the business

Acquisition Details
The acquisition represents a U.S. GAAP FY2020 EBITDA multiple of 3.7x. GCC will finance the acquisition at the BLC level, with the support of GCC and certain material subsidiaries of GCC, with U.S.$620 million via a fully committed financing arranged by Joint Lead Arrangers and Joint Bookrunners BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, BofA Securities Inc. and Scotiabank Inverlat, S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat. The remaining portion of the purchase price of Smart & Final will be financed through the assumption of certain indebtedness and the use of cash on hand or existing facilities. Concurrent with the transaction, BLC will be refinancing its existing debt. At the close of the acquisition, GCC’s consolidated pro forma net debt to EBITDA ratio is expected to be 1.1x. The GCC board of directors approved this transaction.

After closing, Smart & Final will operate as a separate operating unit within GCC, with limited integration expected. The transaction is expected to close in Q2 or Q3 2021, pending U.S. and Mexican regulatory approval and other customary closing conditions.
RBC Capital Markets, LLC acted as the exclusive financial advisor and Bufete Robles Miaja, S.C. and Sidley Austin LLP as the legal advisors to GCC and BLC. Credit Suisse and Deutsche Bank acted as financial advisors and Morgan, Lewis & Bockius LLP acted as the legal advisor to Smart & Final and Apollo. Skadden, Arps, Slate, Meagher & Flom LLP and Galicia Abogados, S.C. acted as the legal advisors to the Joint Lead Arrangers and Joint Bookrunners for the acquisition financing.

An investor presentation with additional details regarding the acquisition can be found in the Investor Relations section of our website at www.grupochedraui.com.mx/en/inversionistas/index.html.

An information statement (“Folleto de Reestructuración Societaria”) with details on the transaction will be available on GCC’s website at www.grupochedraui.com.mx/en/inversionistas/index.html and the Mexican Stock Exchange’s website www.bmv.com.mx., as soon as preparation of GCC’s pro forma consolidated financial information with the target’s audited information for the end of the 2020 period is concluded.

About Grupo Comercial Chedraui
Chedraui is a publicly owned company with variable capital created under the name Grupo Comercial Chedraui, S.A.B. de C.V., that operates hypermarkets and supermarkets in Mexico and the United States. Grupo Comercial Chedraui, S.A.B. de C.V. trades in the Mexican Stock Exchange under the ticker “CHDRAUI”. For additional information on Chedraui, please visit www.grupochedraui.com.mx.

About Bodega Latina Corporation
Bodega Latina Corporation entered the grocery retail marketplace with its first store in South Gate, California in June of 1997. In 2018, BLC completed the acquisition of Fiesta Mart, a Texas-based food retailer with an emphasis on the Hispanic Segment. Headquartered in Paramount, California, BLC is focused on offering the communities it serves quality products at the lowest possible prices in clean, modern stores. BLC currently operates 61 El Super stores, 3 El Super Fresh stores and 59 Fiesta Mart stores across California, Arizona, Nevada, New Mexico and Texas. For additional information on Bodega Latina, please visit www.elsupermarkets.com.

About Smart & Final
Smart & Final is the smaller, faster grocery warehouse store, headquartered near Los Angeles in Commerce, Calif.. Smart & Final’s 254 store locations offer quality products in a variety of sizes, saving customers time and money without a membership fee. Its larger format stores, Smart & Final Extra!, combine the warehouse store with traditional grocery offerings like farm-fresh produce and natural and organic options, to provide a one-stop shop for all. In business since 1871, Smart & Final remains committed to giving back to its communities through employee volunteer opportunities and donations to local nonprofits. For additional information on Smart & Final, please visit www.smartandfinal.com.

About Apollo
Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, San Diego, Houston, Bethesda, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong, Shanghai and Tokyo, among others. Apollo had assets under management of approximately $461 billion as of March 31, 2021 in credit, private equity and real assets funds. For more information about Apollo, please visit www.apollo.com.