Ares could make nearly 2.5x its money with Smart & Final IPO

After less than two years, Ares Management stands to more than double its money with the IPO of Smart & Final.

The warehouse-style retailer plans to price its offering on Tuesday, Sept. 23, and trade the next day, an underwriting source said. Smart & Final is offering 13.45 million shares at $12 to $14 each via bookrunner Credit Suisse. Other underwriters include Morgan Stanley and Deutsche Bank Securities, a regulatory filing dated Sept. 11 said.

Commerce, California-based Smart & Final, a food retailer, operates 250 warehouse-style stores throughout the western United States plus 13 stores in northern Mexico. The company produced $3.2 billion in 2013 sales, up from $3 billion in 2012, the filing said. Net income was about $8.2 million last year.

Since its sale to Ares, Smart & Final’s long-term debt has more than doubled to $703.3 million as of June 15, the regulatory filing said. Long-term debt was $303.2 million on Jan. 1, 2012. Smart & Final said it plans to use about $115.5 million of its IPO net proceeds to pay down its debt to about $589.2 million, the filing said.

[contextly_sidebar id=”erXG8B4TCNlUJHAxjKv6UfnMhqbKxvJB”]Ares acquired Smart & Final in October 2012  in a deal valued at $975 million. Ares put in $287 million equity, a report from Moody’s Investors Service from that time said. The Smart & Final investment came from two funds, Ares Corporate Opportunities Fund III LP and Ares Corporate Opportunities Fund IV LP, the filing shows.

Opportunities Fund IV collected $4.7 billion in 2012, while Fund III closed at $3.5 billion in 2008. Fund III is producing an IRR since inception of 22.84 percent as of Dec. 31, performance data from Colorado Public Employees’ Retirement Association said, while Fund IV is generating a negative 12.6 percent IRR since inception.

Fund III and IV each own about 27.6 million shares, or 47.82 percent, of Smart & Final. Together the Ares funds own a combined 55.2 million shares, or 95.64 percent, of the retailer, SEC filing said.

Smart & Final does not appear to have issued any dividends to shareholders since its sale in 2012.

Ares is also not selling shares in the IPO. However, each Ares fund is providing about 1 million shares with the overallotment option that is offered to underwriters (i.e., the greenshoe). If the greenshoe is exercised, Ares’ stake will drop to a combined 53 million shares, or less than 75 percent. At $13 a share, the midpoint of Smart & Final’s IPO range, Ares’ stake will be worth $690 million.

Including the $26 million from the greenshoe and paper gains, Ares looks to make about 2.5x its investment.

Ares declined comment.

Photo courtesy of Smart & Final