Thursday, April 14, 2011

Sprouts Farmers Market's Acquisition-Merger of Henry's Farmers Market to Be Final On Monday, April 18


The Insider - Heard on the Street

As regular readers of Fresh & Easy Buzz know, I broke the news in my January 5, 2011 column that private equity firm Apollo Global Management, owner of grocery chains Smart & Final and Henry's Farmers Market, both based in Southern California, and Phoenix, Arizona-based Sprouts Farmers Market were in serious deal talks about an acquisition (or merger) of the Henry's chain by Sprouts.

I also reported on the positive progression of the deal talks in a series of columns beginning after January 5, leading up to to the February 16, 2011 announcement by Apollo and Sprouts Farmers Market that a deal had been done, in which Sprouts would acquire Henry's Farmers Market, and that as part of the deal the investment firm would become majority owner of the Sprouts chain, in partnership with its current group of co-founders and co-owners, which include CEO and board member Shon Boney and his father Stan, who's chairman of the board.

Shon Boney's father and his uncle, Scott Boney, founded the chain that eventually became Henry's Farmers Market, naming it after their farther, Henry Boney, who started the first family market, a fruit stand in San Diego, in 1943.

Scott Wing and Kevin Easler co-founded Sprouts Farmers Market with Stan and Shon Boney. Like the Boney's, the two men hold minority ownership stakes in the company and serve on the board, as do Sprouts' president, Doug Sanders, and chief financial officer Brad Denton. One or more representatives of private equity firm Apollo Global Management will join the current six-person Sprouts Farmers Market board after the Henry's Farmers Market acquisition-merger is final on Monday.

This morning I can report the acquisition-merger of Henry's Farmers Market by Sprouts Farmers Market and Apollo Global Management will become final on Monday, April 18, unless there's a major hiccup between today and Monday, which is unlikely. If such a hiccup were to occur, which is doubtful, the finalization of the Henry's-Sprouts merger will still happen before the end of next week, my sources tell me.

The finalization of the deal, announced on February 16, will allow Sprouts Farmers Market to begin consolidating and integrating the Henry's operation, which is headquartered in Irvine, California, and the 40-plus Henry's banner (in California) and Sun Harvest banner (Texas) stores into its operations.

Sprouts plans to first change the Sun Harvest banner stores in Texas to the Sprouts Farmers Market name. Later is plans to re-brand the Henry's Farmers Market banner stores to Sprouts Farmers Market. All new Henry's and Sun Harvest banner stores in the pipeline will be opened under the Sprouts banner.

Even though Apollo Global Management will continue to be the majority-owner of City of Commerce California-based Smart & Final, as well as becoming the majority-owner of Sprouts Farmers Market, the two grocery chains will not have anything to do with one another from an operations standpoint. The two chains are separate corporate entities but do share the same parent - private equity firm Apollo Global Management.

Speaking of that shared parent, here's a prediction: Look for Apollo Global Management to take Sprouts Farmers Market public in an IPO about 12 -to- 24 months from Monday, April 18.

According to my sources, Sprouts Farmers Market will keep the Henry's Farmers Market headquarters office in Irvine, California operating no longer than six -to- 12 weeks after the deal closes on Monday, as it transitions the Henry's corporate functions to its Arizona corporate office.

The majority of the Henry's Farmers Market headquarters employees will lose their jobs because the buying, merchandising, marketing, finance, human resources and other corporate functions will be picked-up by existing Sprouts Farmers Market headquarters' employees in Phoenix, as is almost always the case in such acquisitions and mergers. It's a way to immediately reduce staff-level labor costs.

Sprouts recently signed a 32,306 square foot lease renewal and expansion of its corporate offices at the Paradise Village Office Park, which is at 11811 North Tatum Boulevard in Phoenix, in preparation of the closing of the deal on Monday, according to the joint-venture owners of the property, Sterling American Property Inc. and Phoenix-based Lincoln Property Company, who's brokers published the lease signing on April 7. Lincoln Property Company manages the 268,598 Paradise Village Office Park complex in Phoenix.

Most of the Henry's headquarters employees already know their fate and when they're leaving the company. Those few who don't know will learn more next week.

So far only a couple of the headquarters' employees have been offered jobs by Sprouts Farmers Market at its Arizona offices. My sources tell me just two of the members of the Henry's Farmers Market corporate team, president Jim Nielsen and a merchandising-schematics staffer, have been offered and excepted positions at Sprouts in Arizona. Nielsen will become Sprouts chief operating officer once the acquisition-merger is final on Monday. He announced his position in a letter posted on the Henry's Farmers Market website in March, 2011.

A handful of other Irvine headquarters office employees have been offered field merchandising and store-level positions at some of the existing Henry' stores in Southern California that will eventually fly the Sprouts Farmers Market banner.

Integrating Henry's Farmers Market's corporate functions and operations into Sprouts' Phoenix, Arizona headquarters should be fairly seamless because as noted above Jim Nielsen is joining Sprouts Farmers Market as its chief operating officer. Nielsen previously held the chief operating officer title at Henry's Farmers Market, before being promoted not too long ago to president.

None of the Henry's and Sun Harvest store employees are being let go at this point in time specifically due to he merger. It's likely that will only happen if and when Sprouts closes any of the existing 40-plus Henry's and Sun Harvest stores. And if it does close any of the stores, and if so it won't be many units, Sprouts will likely offer employees jobs at existing or new stores that come on line, my sources say.

When the deal closes on Monday, the combined Sprouts and Henry's - then called Sprouts Farmers Market - will operate 99 farmers market-style food and grocery stores in California, Nevada, Arizona, New Mexico, Colorado and Texas.

Sprouts opened it's newest store in Roseville, California, which is near Sacramento in Northern California, on April 6. Sprouts Farmers Market will open at least seven additional new stores this year, including units in Redondo Beach, Westlake Village, Dublin, Costa Mesa, Lakewood and Granada Hills (all  in California), and Carrollton, in Texas, according to Sprouts Farmers Market's CEO, Shon Boney. Another new store in Citrus Heights, California, near Sacramento, could also be opened at the end of this year, or in early 2012.

I'll  have more on the new Sprouts Farmers Market - which will have annual sales of about $1 billion and over 100 stores, in the 20,000 -to- 32,000 square-foot range, making it a major player in the Western U.S. - in a follow-up column soon.

- The Insider

[Editor's Note: Read 'The Insider's' columns on the Henry's-Sprouts Farmers Market deal, along with our additional coverage, at the links below.]

~February 16, 2011: The Sprouts-Henry's Deal: New Website Reunites the Two Grocery Chains As 'One Farmers Market'

~February 16, 2011: Breaking: Smart & Final Enters Into Agreement to Sell Henry's to Sprouts Farmers Market

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

~January 7, 2011: 'The Insider' - Sprouts Farmers Market-Henry's Farmers Market Deal Negotiations Continue; End-Game Could Be Near

~January 8, 2011: Smart & Final-Henry's Tell Employees About Deal Discussions With Sprouts Farmers Market; Confirming 'The Insider's' Reports

~January 10, 2011: Sprouts Farmers Market to Open Second Northern California Store in Roseville No Later Than Mid-April

~January 11, 2011: 'The Insider' - A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

~January 24, 2011: 'The Insider' - End-Game Could Be Near in the Sprouts Farmers Market-Henry's Farmers Market Deal Talks

~January 30, 2011: 'The Insider' - The Sprouts & Henry's Deal Talks: Smart & Final is Looking Like A Retailer That Wants to Make A Deal

Also see:

~December 11, 2010: Smart & Final's Not So Marvelous SmartCo Foods' Misadventure in Denver

~November 17, 2010: Smart & Final Pulls the Plug On All Five SmartCo Foods Stores in Metro Denver After Being Open Less Than Five Months

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Anonymous said...

Is Sprouts going into the Pacific North West Oregon & Washington State?

Fresh & Easy Buzz said...

We aren't aware of any immediate plans for Sprouts to open stores in the Pacific Northwest. Immediate defined as through 2012.