For the private-equity giant Cerberus, which was co-founded by the billionaire Stephen Feinberg and oversees $60 billion in assets, getting into the grocery business was relatively easy. Getting out has proved much more difficult.
For years, the grocery store industry had low growth yet was intensely competitive, with Walmart, Target, Costco and others increasingly elbowing their way into food shoppers’ carts. As grocery store chains struggled to compete against the big box behemoths, consolidation happened and private-equity firms moved in, sometimes with disastrous results.
Corporate buyout specialists generally raise money from big investors, like pension funds for state employees, teachers, police officers and firefighters, and then buy undervalued or underappreciated companies. To maximize investment returns, the buyout firms typically leverage their cash with loans that are taken out by the company itself.
For most buyout funds, the hope is to fix or improve the company and make profits in a public offering or by selling the company to another buyer within four to seven years. In other instances, the debt piled on the company for the buyout overwhelms it, as was the case in 2016 and again in 2020 when the New York grocery chain Fairway Markets filed for bankruptcy.
Cerberus moved into the grocery business 17 years ago when it acquired 655 struggling stores owned by Albertsons sprinkled around Florida, Texas and Northern California for $350 million in equity. In 2013, the investors put up $100 million in cash and took out $3.2 billion of debt to acquire more than 800 stores from Supervalu. About a year later, more stores were added when the group contributed $1.25 billion to acquire more than 1,300 stores from Safeway. The rest of the $9 billion purchase of the Safeway stores was financed with debt, pushing Albertsons’ total debt to more than $12 billion.
“Our story with Albertsons is one of a long-term partnership that has created thousands of union careers and invested billions into stores, infrastructure and local communities,” Cerberus said in a statement. “It has also supported the retirement savings of individuals, universities, nonprofits and others who have entrusted us as a fiduciary.”
But various efforts by the investors to find a lucrative way to cash out of the grocery store business have been thwarted several times as Albertsons has struggled with net losses for several years.