Mergermarket – SpartanNash’s Deal For Martin’s Super Markets Was Result Of Auction Process, CFO Says (November 26, 2018)

SpartanNash’s [NASDAQ:SPTN] acquisition of Martin’s Super Markets came after a three-month auction process, SpartanNash CFO Mark Shamber said.

Investment Bank PJ SOLOMON advised Martin’s on the sale, announced on last week, on 20 November. Shamber declined to disclose financial terms for the deal, but said that more information may be released around the closing date, which should be in SpartanNash’s 1Q19, which begins 29 December.

Based in Grand Rapids, Michigan, SpartanNash has 139 supermarkets under several banners in nine states, mostly in the Midwestern US. Martin’s 21 stores operate in southwestern Michigan and northwestern Indiana. SpartanNash also distributes its several food brands nationwide, as well as in Europe, Cuba, Bahrain, Djibouti and Egypt.

Shamber declined to say if SpartanNash is currently looking at any more targets, but said that the company has “historically been an acquirer” and considers opportunities as they are presented. SpartanNash has made three other acquisitions since 2015, according to Mergermarket data. The company was formed in 2013 when its forerunner, Spartan Stores, merged with Nash Finch Company.

Martin’s was a fit for SpartanNash, Shamber said, because it operates in adjacent markets to those of SpartanNash’s in Michigan, and it gives SpartanNash a presence in some markets in Indiana, where it does not currently have any stores. Martin’s has long been a customer of SpartanNash’s distribution wing, Shamber said, which gave SpartanNash a close look at how Martin’s operates.

There are no plans to either close or change the branding of any Martin’s stores, Shamber said, and it is too early to say if the brand will expand. Renovations that are already planned for Martin’s stores will continue as scheduled, he added.

Scott Moses, Managing Director and Head – Food Retail & Restaurants Investment Banking at PJ SOLOMON who advised Martin’s, said that this transaction is part of a wider trend of consolidation in the grocery store sector, which is large and fragmented in the US.

“Scale is the biggest driver of credit rating and therefore the cost of the debt capital that food retailers require to make critical investments in price, people, technology and growth, to compete with Amazon [NASDAQ:AMZN], Walmart [NYSE:WMT], Costco [NASDAQ:COST], CVS, Walgreens, Dollar General [NYSE:DG] and Aldi,” Moses said.

In the last several years, there have been dozens of deals in the grocery industry, including Amazon’s high-profile acquisition of Whole Foods for USD 13.4bn in 2017, according to Mergermarket data. Other deals included major corporations like Cincinnati-based Kroger [NYSE:KR] and regional players like Keene, New-Hampshire-based C&S Wholesale Grocers and Sunbury, Pennsylvania based Weis Markets [NYSE:WMK].

Amazon is quickly changing the retail sector, Moses said. Aside from its seemingly limitless options of products online and its Whole Foods acquisition, it also offers AmazonFresh, a fresh food delivery service, and recently announced plans to open thousands of cashier-less stores by 2021.

“Its very low cost of capital and extremely high equity valuation give it a near limitless ability to invest in transformational competition for food & drug retailers, without fear of failure,” Moses said.

The Food Partners acted as financial advisor for SpartanNash, Warner Norcross & Judd served as its legal advisor. Simpson Thacher & Bartlett was Martin’s legal advisor.

SpartanNash’s stores compete with big-box stores like Grand Rapids-based Meijer and Bentonville, Arkansas-based Walmart, as well as grocery store chains like Kroger and Essen, Germany-based Aldi, Shamber said. There are also some regional chains its stores compete with, he said.

Martin’s had more than USD 450m in net sales in its fiscal year that ended 29 July, according to the deal announcement.

Martin’s did not respond to a request for comment.