The Chilean multi-brand retail conglomerate Cencosud achieved its dream of entering the U.S. market by acquiring The Fresh Market grocery chain for $670 million.
South America’s leading retailer with operations in Chile, Argentina, Brazil, Peru, and Colombia signed a definitive agreement with Apollo Global Management to acquire a 67% stake in The Fresh Market Holdings, Inc, a premium specialty grocer.
Existing Company shareholders, including the Apollo Funds, the Berry family, and Company management, will retain a minority equity interest in The Fresh Market.
This partnership provides Cencosud with access to the U.S. markets, where there is a much greater depth of capital markets alternatives, the company said in a press release.
“The opportunities are enormous because it is a chain that has a focus on certain categories and values that we need to transfer to Latin America, such as the supply of organic products, vegans, quality of products such as meat, and at the same time Cencosud has much to contribute, with all the products we buy, our brand, our development in e-commerce, our development in loyalty, there are many possible synergies, and that is what we are going to work hard,” said Matías Videla, CEO of Cencosud in a press conference.
For her part, Heike Paulmann, President of the Cencosud business group, said: “It is a great step for Cencosud to enter the United States, in accordance with our diversification strategy. I am very sure that it will be a tremendous experience and very profitable for both companies.”
Cencosud is one of the largest and most prestigious multi-brand retail conglomerates in Latin America, with operations in Argentina, Brazil, Chile, Peru, and Colombia. The group operates a diversified portfolio of retail segments, including 915 supermarkets, 108 home improvement, construction stores, 49 department stores, and 67 shopping centers and malls. Cencosud was founded in 1976 with the first Jumbo supermarket in Chile and now employs more than 115,000 collaborators.
The Fresh Market is a supermarket chain founded in 1982, with headquarters in Greensboro, North Carolina. The Company has 160 stores (100% leased) across 22 states, with an average store size of approximately 21,000 square feet.
This grocery chain offers unique, and excellent quality produce, restaurant-quality prepared dishes, hand-prepared products, premium baked goods, fresh flowers, fresh-cut meats, and carefully selected holiday and special occasion items.
“The Fresh Market is one of the best supermarkets in the USA. It is widely recognized by market specialists and customers alike for its customer-centric culture, excellence in fresh produce, and memorable shopping experience in its stores. This unique value proposition results from the successful strategy executed and the commitment of a team of highly experienced executives led by Jason and Andy,” said Videla. “We are very pleased to make our first investment in the American market through a partnership of the prestige of Apollo Global Management with extensive experience in the retail market. Our team is very excited to start working together to accelerate the growth and value of the company,” added Cencosud’s CEO.
With this transaction, Cencosud will acquire a 67% stake in The Fresh Market, with the current shareholders owning the remaining 33%. In addition, $265 million in cash will go to The Fresh Market’s balance sheet, reducing the company’s net leverage to 2.7x EBITDA.
Thus, the Chilean conglomerate expands its geographic diversification with approximately 12% of pro forma revenues coming from the United States, a traditionally defensive market with a stable currency.
The supermarket chain’s board of directors and its current management team will continue to lead the business, and existing shareholders will retain a stake in the company, Cencosud said.
For his part, Jason Potter, CEO of The Fresh Market, said, “Cencosud has demonstrated that it is a world-class retailer with exceptional margins, and we look forward to sharing best practices across our businesses. The Fresh Market has experienced strong financial momentum over the last few years, and this partnership with Cencosud will allow the company to capture market share further as we expand our footprint in our core Southeast market and beyond. Our entire team looks forward to the partnership with the Paulmann Family, Matias, and the team at Cencosud.”
The Fresh Market reported revenue of $1,933 million in 2021, with an adjusted EBITDA of $196 million and an EBITDA margin of 10.2%. Sales consisted of ~70% perishables (vs. 35% in traditional supermarkets). The fresh-focused offering helps to drive strong EBITDA margin performance and ~15% prepared foods, which is a crucial driver of growth and profitability.
Cencosud will finance the investment primarily through cash on its balance sheet. Post-closing, Cencosud’s gross leverage will be approximately 3.1x, and The Fresh Market’s debt will be refinanced to improve its capital structure from an extended maturity and interest rate perspective.
Apollo Partner Andrew Jhawar commented, ” The Fresh Market has experienced best-in-class sales growth over the last two years. We are very excited to enter its next phase alongside Cencosud, one of the best retailers in South America. Looking ahead, the company has a tremendous new store growth opportunity that Cencosud’s investment can accelerate. We look forward to working closely with Heike, Matias, and the Cencosud team in helping to drive continued value creation at The Fresh Market.”