Supermarket M&A Activity Creates Ripples for Shopping Center Owners

source: National Real Estate Investor

The supermarket sector has been one of the most active markets for mergers and acquisitions (M&A) over the past two years, and there’s no reason to think the activity will slow this year. Retailers will continue to opportunistically seek acquisitions to drive earnings growth, and the ongoing consolidation could translate into big changes for shopping center owners, experts say.

“In the grocery sector, there are clear benefits to being larger,” says Louis Biscotti, global practice leader for the food and beverage group at tax advisory firm WeizerMazar. “Being able to spread the overhead across thousands of stores creates economies of scale. And the bigger you are, the more leverage you have with food manufacturers and wholesalers.”

There were 37 supermarket M&A deals in 2014, compared with 28 deals in 2013, according to preliminary numbers from The Food Institute, a nonprofit information source on the food industry. The organization’s Food Business Mergers and Acquisitionsreport will be released in late February.

According to a source from The Food Institute, the supermarket sector hasn’t experienced such robust M&A activity since 2003 when there were 36 supermarket deals. The largest acquisition last year was AB Acquisition LLC’s purchase of Safeway Inc., which is worth about $7.64 billion in cash, and pending other transactions could top $9 billion. Other notable deals were Alimentation Couche-Tard Inc.’s purchase of The Pantry for approximately $861 million.

Food retailers overall (including convenience stores and other such retailers) made up 14.2 percent of all food industry mergers in 2014, with 72 total deals, a 75 percent increase over 2013.

“More and more companies are recognizing that organic growth is difficult to achieve, and that acquisitions are the fastest way to grow,” Biscotti says. “There are still a lot of candidates that are ripe for acquisition, and I think we’ll continue to see very large deals.”

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