Friday, January 7, 2011

Sprouts Farmers Market-Henry's Farmers Market Deal Negotiations Continue; End-Game Could Be Near

The Insider - Heard on the Street

In my column on Wednesday (January 5, 2011) I wrote about talks and negotiations going on between representatives of Arizona-based Sprouts Farmers Market and Apollo Management/Smart & Final, regarding a possible acquisition of the Smart & Final-owned Henry's Farmers Market chain by privately-held Sprouts. Private equity firm Apollo Global Management owns Smart & Final, which is based in City of Commerce, California.

You can read the full column at this link - January 5, 2011: Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards.

Below are a few things I've learned since Wednesday, along with some other new information and analysis about a combined Sprouts and Henry's.

First, since the column appeared on Wednesday, serious talks and negotiations have continued between representatives of Sprouts Farmers Market and Apollo/Smart & Final, regarding a potential purchase of the Henry's Farmers Market chain by Sprouts. However, as of today, no deal has been done.

Based on current information, I don't expect the talks to result in a deal announcement in the next few days, if there is one, although unless one is directly participating in negotiations of this kind it's impossible to know the rate in which progress is actually being made. Instead, based on what I've learned, if a deal is done, expect it to be announced around the January 14-21 time period, at the earliest. And of course, it's possible a deal agreeable to both parties won't be reached. It's the nature of the acquisition negotiation dance, after all.

However, based on the information I have at this point in time, things are pointing more in the direction of a deal happening between the two parties rather than one not happening.

I've also learned that since publication of the column on Wednesday, Apollo/Smart & Final has told a select number of senior-level employees (beyond those doing the negotiating) that talks are going on about the possible sale of Henry's Farmers Market to Sprouts Farmers Market.

If the deal does happen, acquiring Henry's Farmers Market will roughly double Sprouts' store count and its annual sales. It will also bring back home some family food retailing history for Stan and Shon Boney, two of the four founders of Sprouts Farmers Market. Shon Boney is the CEO of Sprouts. His father Stan Boney is chairman of the board.

Stan Boney is Henry Boney's son and Shon Boney is the grandson of the "Henry" who started the Henry's Farmers Market format and chain. It was first called Boney's Marketplace in the early 1980's. In 1997 the family renamed it Henry's Marketplace, after Henry Boney's first name, changing it from the family's last name. Not long after Wild Oats Markets Inc., which Whole Foods Market, Inc. acquired in 2007, bought Henry's in 1999, it renamed the chain Henry's Farmers Market.

In late 2007-early-2008, Stan and Shon Boney and team at Sprouts Farmers Market set a strategic goal of having 100 stores open and operated in the Western and Southwestern U.S. in five years - late 2012-to-early 2013.

Sprouts Farmers Market is halfway there today. But a 2011 acquisition of or merger of some kind with Henry's Farmers Market would, along with the new stores Sprouts has set to open this year, put it well over the 100-store mark far in advance of that late 2012-early-2013 marker.

Sprouts Farmers Market, which is headquartered in Phoenix, Arizona, currently has its 54 stores in Arizona, Colorado, California and Texas. The Henry's Farmers Market chain has its stores in California and Texas. The California stores are under the Henry's Farmers Market banner, while the Texas stores are called Sun Harvest Farmers Market.

On of Sprouts' key strategic goals is to have more stores in California. Its been opening numerous new stores in Southern California since 2009, for example, and opened its first store in Northern California last year. Shon Boney has also said publicly he would like to have more stores in the San Diego region in far-Southern, California, where Sprouts Farmers Market has only a handful of units.

All but 11 (the Sun Harvest units in Texas) of Henry's 46 stores are in California. And all but one of the California stores, the grocer's first unit in Northern California, which like Sprouts Farmers Market, Henry's Farmers Market opened in 2010, are in Southern California, including a number of units in the San Diego area, a key strategic factor for Sprouts.

The California connection described above, along with the fact Henry's Farmers Market has the 11 Sun Harvest stores in Texas, where Sprouts Farmers Market has major growth plans, are the primary reasons CEO Shon Boney and Sprouts' board of directors, which in addition to chairman Stan Boney and son Shon includes the other two co-founders of the chain, Scott Wing and Kevin Easler, is in a nutshell why the retailer sees a good strategic fit in buying Henry's Farmers Market.

Lastly, it's important to note Sprouts Farmers Market and Henry's Farmers Market are essentially equals in terms of respective store-counts and annual sales. This logically should lead some readers to ask how privately-held Sprouts Farmers Market could come up with the money or financing to acquire it's near-equal-in-size Henry's.

The answer to this is to keep in mind that the owner of Smart & Final, and thus its Henry's Farmers Market chain, is a private equity firm, Apollo Global Management. As such, there exist a myriad of ways a private equity firm such as Apollo can structure deals with potential buyers like Sprouts Farmers Market, including owning an interest in Sprouts as part of the deal, helping to arrange financing, helping to bring in other investors, and so on. Private equity firms like Apollo buy, work to add value to, and then sell companies and entities like Henry's Farmers Market. And there are many ways to sell or spin off such companies and entities, including finding a match with a solid potential mate - another farmers market-format kissing cousin grocery chain, for example - and then making that match work in terms of financing and the like. That's the art of the deal.

I'll have more on the potential Sprouts-Henry's deal if and as new information warrants.

- 'The Insider'

[Editor's Note: 'The Insider' column appears regularly in Fresh & Easy Buzz. The opinions in the columns are those of 'The Insider,' and not necessarily shared by Fresh & Easy Buzz. Below are links to 'The Insider's' first column of 2011, and to a selection of 2010 columns, published in Fresh & Easy Buzz.]

~January 5, 2011: Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards

2010 columns

~December 30, 2010: Seven Predictions For Tesco's Fresh & Easy Neighborhood Market For 2011

~October 27, 2010: Save Mart CEO Bob Piccinini Poised to Make it to the 'Bigs' as Member of Golden State Warriors' Ownership Group

~October 8, 2010: Incoming Tesco CEO Philip Clarke Needs to 'Imagine' When it Comes to Fresh & Easy Neighborhood Market USA

~September 13, 2010: Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

~September 3, 2010: How the California Grocers Association and its Members Can Snatch Victory From the Jaws of the Defeat of California's Plastic Bag Ban

~August 22, 2010: Challenges & Opportunities: Tesco's Fresh & Easy Neighborhood Market Will Supply its Northern CA Stores From its Riverside County DC in Southern CA

~July 18, 2010: When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle

~July 13, 2010: A Few Words on The Life and Death of Veteran Southern California Grocer Roger K. Hughes

~June 27, 2010: The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?

~June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

~May 20, 2010: Welcome to Discountopia USA

~April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California

1 comment:

Anonymous said...

Apollo Global Management is interested in acquiring Sara Lee. Last summer Sara Lee turned down an offer from KKR of about $12 billion. So if Apollo wants to buy Sara Lee, you get an idea of the kind of money involved. Sara Lee's board is supposed to decide soon if it wants to sell the whole company or break it up and sell it off that way. If Apollo remains interested that means it has to raise big bucks fast.