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Sunday, 28 September 2014 22:00

SpartanNash $1.3B merger hinged on keeping debt in check, executing on integration

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Dennis Eidson Dennis Eidson COURTESY PHOTO

The structure of the “transformational” merger last year that created SpartanNash Inc. set the Byron Center-based company on a course to take advantage of the growing consolidation trend in the supermarket industry.

Set up as a $1.3 billion all-stock transaction between Spartan Stores Inc. and Minneapolis-based Nash Finch Co., the merger positioned SpartanNash with consolidated indebtedness of around $600 million at the time of the close on Nov. 19, according to filings.

Going into the process, it was important for SpartanNash not to wind up as an overleveraged company that would be unable to seek out future deals and invest in growth, said President and CEO Dennis Eidson. The all-stock merger offered “the most efficient, cost-saving model to combine the two companies,” he said.

In the deal, Spartan Stores shareholders own approximately 57.7 percent of the equity of the combined company, while Nash Finch shareholders own approximately 42.3 percent.

An integral piece in making the deal work was a $1 billion revolving loan facility Spartan Stores negotiated with Wells Fargo Bank and Bank of America to pay off the debt from both companies.

New York City-based investment bank Moelis & Co. advised on the financial transactions. Spartan worked with Deloitte for accounting services and Grand Rapids-based Warner, Norcross & Judd LLP for legal counsel.

“Unlike a typical acquisition which would have created an overleveraged operation, we structured the deal so that we can act on our growth strategy,” Eidson said. “Both companies had been considering this deal for years — it made sense geographically and was a good business fit. Truthfully, the deal sold itself.”

With an expected $8 billion in sales for 2014, its first year as a consolidated company, SpartanNash — the finalist in the MiBiz 2014 M&A Deal of the Year Award in the more than $100 million category — became one of the largest food distributors in the country with 1,900 independent customers and 167 corporate-owned retail locations. The company also claims to be the largest food distributor (by revenue) to military commissaries and exchanges in the U.S., a line of business entirely attributable to Nash Finch. SpartanNash serves customers in 44 states, the District of Columbia, Europe, Cuba, Puerto Rico, the Azores, Bahrain and Egypt.

Integrating two operations of the size of Spartan Stores and Nash Finch was no small undertaking, Eidson said. The company divided itself into 13 key functions and created an integration management team, led by a vice president from each of the companies, to head up the three-year process.

SpartanNash also worked with global consultancy EY for integration planning and due diligence. Importantly, the process resulted in a “flexible template” for SpartanNash to use in integrating future deals as well, Eidson said.

“Without a doubt our success to date has been the result of our due diligence and utilizing a robust integration management process,” he said. “Clearly, it is critical to have a great plan — and just as important to remain disciplined in executing the plan and holding teams accountable to it.”

The company saw the integration process as crucial for it to realize the $52 million in synergies it expected to achieve with the merger. The company is currently on track to hit “and likely exceed” that target, Eidson said.

“Yet we know we can’t let up,” he said.

Free from the burden of excessive debt and with a larger scale and geographic footprint, SpartanNash has invested growth, including $20 million in the North Dakota market, which is benefitting from an oil boom. That investment included store remodels that brought the Family Fare Supermarkets brand outside of Michigan for the first time, Eidson said.

“This has us poised for growth and positioned to act on new deals in the future,” he said. “We also prepared to be acquisitive, being mindful of our debt. The food industry has very low margins so we used this discipline to not over leverage the company.”

Sidebar: Finalist - More Than $100 Million

  • Company: SpartanNash Inc. (Nasdaq: SPTN)
  • Top executive: Dennis Eidson, president and CEO
  • Annual sales: Expected $7.9 billion to $8.04 billion for 2014 fiscal year
  • Business description: Food distributor to military commissaries and exchanges and independent stores, as well as 167 corporate-owned retail stores
  • Best practices for effective deal-making: Eidson keyed in on the role that the integration process plays in a successful deal of any size. “We began by dividing the company into 13 key functions,” he said. “The integration management team, which is overseeing the three year process, selected a vice president from each company to head the effort. These teams meet weekly to execute the plan, diligently follow the timelines, hold each other accountable, and minimize potential challenges. After all, having a solid plan is one thing — success lies in its execution.”



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