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What’s the Rationale for The Fresh Market Transaction?

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Merger adds a retailer to Apollo’s portfolio

As we saw in the first part of the series, private equity firm Apollo (APO) is buying grocer The Fresh Market (TFM) in a $1.3 billion cash tender offer. Ray Berry and Brett Berry, the founders who own just under 10% of the stock, will continue to hold their stock after the transaction.

As you can see from the above chart, The Fresh Market has been experiencing slowing growth. It’s a classic candidate for going private.

As with any private equity transaction, the goal is to buy the company, improve its performance, and then sell it back into the marketplace at a higher multiple than the entrance price.

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Management’s comments

“We are delighted about this transaction with The Fresh Market, which was one of the early pioneers in small-box grocery, offering unique, delicious and healthy food with a keen focus on perishables,” said Andrew S. Jhawar, Senior Partner and Head of the Retail and Consumer Group at Apollo. “We believe there is a significant opportunity to enhance the brand, merchandise offering and price-value combination to make The Fresh Market a primary destination for food shoppers, while at the same time being committed to social responsibility through partnerships with local vendors and communities. Our team at Apollo has had the tremendous fortune of having executed transactions in several consumables retailers and brands – such as Sprouts Farmers Market, Smart & Final, Hostess Brands and General Nutrition Centers, among others – that have undergone significant transformations under our strategic guidance and we intend to bring that experience to bear at The Fresh Market. We look forward to partnering with Ray Berry, Brett Berry and George Golleher, and beginning our discussions with the executive management team and the over 13,000 team members at The Fresh Market so that we can assist the company in delivering the most inspiring and engaging food shopping experience in the industry with best-in-class customer service.”

Other merger arbitrage resources

Other important merger spreads include the Cigna (CI)-Anthem (ANTM) deal. It’s slated to close in 2H16. The Apollo-ADT (ADT) merger is another important deal. For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.

Investors who are interested in trading in the retail sector should look at the S&P SPDR Retail ETF (XRT).

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