Private equity firm could buy Ukrop's

Investment advisers in the Richmond area were stunned to learn yesterday that Ukrop's Super Markets Inc. might be sold to a private equity firm and not another grocer, as widely speculated.

"I personally don't believe that the Ukrops would sell to a private equity firm, but if they did, it [the deal] would come with a lot of conditions to minimize the impact to the city and to employees," said Michael Jones, chairman and chief information officer of Riverfront Investment Group in Chesterfield County.

Most private equity firms invest for the short term to get a high return on their money and are not in it for the long haul, several advisers say.

Speculation over the future of the Henrico County-based Ukrop's increased yesterday after Supermarket News, an industry publication, posted information on its Web site saying that an unnamed private equity firm had outbid North Carolina-based grocer Harris Teeter. The publication did not name its sources and declined to provide further details.

Ukrop's officials did not return calls or e-mails yesterday. However, the company posted a message on its Twitter feed saying, "People sure like to talk."

A Harris Teeter spokeswoman said in an e-mail that it is against "corporate policy to comment on rumors."

Last month, Food World, another industry publication, wrote that the family-owned Ukrop's had issued a prospectus soliciting buyers. Food World cited multiple industry sources.

The chain has watched its share of the local grocery dollars slip from No. 1 in the past year after being the market leader since 1986.

Until yesterday, all speculation had centered on another grocer buying Ukrop's and not a private equity firm.

Private equity firms are partnerships that raise money from multiple investors, including wealthy individuals and institutional investors such as big pension plans.

They sometimes buy public firms and turn them into private companies. Or they buy family firms that are ready to pass the baton, get their money out, and divide it among generations, Jones said.

"After two or three years, they would bring the company public and pay off investors," he said.

Once they make an acquisition, their goal is to raise revenue and drive down costs to improve profits, Jones said.

"Private equity firms expect to get a very generous return on their investment, generally 15 percent to 20 percent," he said.

"These are things that could have big implications for the culture of an organization."

Historically, private equity firms have been highly leveraged -- for example, investing $100 million and borrowing $100 million for a $200 million investment. Their eye would be on the bottom line to meet debt obligations.

But in this environment of tight credit, more cash on the table probably would be required.

J. Timothy Jester, managing director and director of research for Capital Advisory Group in Henrico, said private equity groups come in all grades of quality.

A high-quality firm would get involved in management by putting people in place to ensure the success and longevity of a business, Jester said.

"All bets are off the table with a medium-quality firm," he said.

A high-quality private equity firm could benefit the Ukrop's stores, Jester said.

Still, "for customers and for residents of Richmond dependent on Ukrop's philanthropy, I would prefer to see the chain bought by another high-quality grocer."

Jeffrey W. Metzger, publisher of Food World, said whoever winds up buying Ukrop's likely will make wholesale changes.

"In my opinion, there are a couple of things that are givens. It will not be called Ukrop's, it will open on Sundays, and it will sell beer and wine," he said.

George Hoffer, a professor of economics at Virginia Commonwealth University, said he believes Minnesota-based Supervalu still is in the mix and could be a contender to buy Ukrop's because the grocery chain is a large customer of Supervalu.

Supervalu is a wholesale distributor to grocery stores. The company also owns and operates about 2,500 stores under several names, including Virginia Beach-based Farm Fresh Inc., which operates The Market at Tobacco Row in Richmond.

"They are the biggest loser if an existing food retailer comes in and buys Ukrop's," Hoffer said of Supervalu, adding that the company could be supporting the sale to a private equity firm.

A spokeswoman for Supervalu said the company would not comment on speculation.

Ukrop's was founded in 1937, when Joseph Ukrop mortgaged the family farm to open the first store in Richmond. It expanded to dominate the Richmond grocery market and now has 28 stores -- 25 in the Richmond area and one each in Williamsburg, Fredericksburg and Roanoke.

During its 72-year history, the company has been a major supporter of area charities and community events, including sponsoring the Monument Avenue 10K race. Ukrop's Golden Gift program has distributed more than $12 million to local nonprofit organizations since 1987.

Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.

Contact Carol Hazard at (804) 775-8023 or chazard@timesdispatch.com.