It’s Official: Senior Management Buys Tops From Morgan Stanley

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The sale of 159 Tops Friendly Markets by Morgan Stanley Capital Partners (MSCP) to a group of the regional chain’s senior management team was officially completed on December 1.  No financial terms of the agreement were disclosed, but the new ownership team will reportedly absorb the majority of the retailer’s $650 million debt. MSCP acquired Tops from Ahold in 2007 for $310 million.

Frank Curci, current chief executive, will remain CEO of the new organization. The other senior managers in the acquisition group are: Kevin Darrington, chief operating officer; Rick Mills, chief financial officer; John Persons, senior VP- operations; Jack Barrett, senior VP- human resources; and Lynne Burgess, senior VP- general counsel.

Since the MSCP purchase of Tops six years ago, the Williamsville, NY-based regional chain has increased its store count from 71 to 159 and more than doubled its annual sales which are now approximately $2.5 billion. It has also expanded is core geographic footprint from western New York into northern and eastern markets in the Empire State as well as gaining market share in northwestern Pennsylvania and Vermont.

Part of that growth came through acquiring other struggling supermarkets. In 2009, Tops purchased more than 50 stores from bankrupt grocer Penn Traffic Co. and three years later picked up 21 Grand Union stores.

However, improving the bottom line with the level of debt that the company is facing, will be a challenge. Tops reported a loss of $9.5 million during the first half of this year, down from a profit of $10 million during the first half of 2012, as interest payments adversely impacted earnings, which declined by 37 percent. Sales increased 6 percent during the 28-week period that ended in July, rising to $1.34 billion from $1.27 billion.

Curci knows the big picture well and also understands what it will take to improve Tops’ market niche having returned to the retailer for a second journey as CEO. His first Tops tour of duty came in 1995, when the company was owned by Ahold. He resigned in 2003 during an investigation involving accounting irregularities (Curci was not found responsible for the problems). When Ahold put the struggling division up for sale in early 2007, Curci reportedly approached Morgan Stanley Global Private Equity about backing a deal to acquire Tops. After several months of negotiation, that deal was completed in October 2007. This new deal is being primarily financed by Bank of America.

In an interview with the Buffalo News, Curci noted, “We’ll put that significant cash flow that we have back into the business so we can continue to grow and prosper. We don’t see any changes to our capital program or our ability to do small acquisitions. Those capital improvements include a steady investment program that aims to upgrade each store every seven years or so. Tops also plans to continue adding gas stations at five to seven supermarkets each year, an initiative that goes hand-in-hand with its promotional pricing strategy, including its program to offer shoppers a 10-cent-per-gallon discount for every $100 in groceries they buy. It’s such a great combination: gas and groceries. People really respond to that. They really like to be able to save on gas.”

“The management team at Tops truly has a passion for the business and dedication to the core values of the organization, and has led the company’s tremendous growth over the past six years,” said Curci.  “This transaction represents the next step in the natural evolution of Tops that began six years ago when we returned operations and decision making to our local markets. Now with local ownership as well, we will be able to build on our successes of the recent past, deepen our commitment to the markets we serve, and further expand to better serve our associates and customers.”