Tops to get new owner in deal backed by current management - The Buffalo News

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Tops to get new owner in deal backed by current management

Tops Friendly Markets has been bought by its top brass, including CEO Frank Curci, bringing one of the region’s largest private employers back to local ownership.

In a highly leveraged buyout with financing from Bank of America, Curci and five other executives bought Morgan Stanley Capital Partners’ ownership stake in the Amherst-headquartered grocery chain.

“Management is buying the stock of the company,” said Katie McKenna, a Tops spokeswoman. “The six members of the management team are the investors.”

Kevin Darrington, Tops chief operating officer; Rick Mills, its chief financial officer; John Persons, its senior vice president of operations; Jack Barrett, its senior vice president for human resources; and Lynne Burgess, its senior vice president and general counsel, round out the new ownership team.

It was Curci who pursued Morgan Stanley in 2007 and brokered the deal that led the Wall Street firm to acquire Tops from Dutch conglomerate Royal Ahold, under whose ownership it had floundered since 1991.

Curci declined interviews but said in a statement that Tops’ evolution has put it in a great position for a successful future.

“This transaction is the next natural step in the process of bringing Tops back to a locally owned and operated company,” Curci, said. “This is the result of a process that started nearly six years ago when Tops was carved out from Ahold and partnered with Morgan Stanley Private Equity. Their financial and business-building expertise, together with a return to local operations and management, has allowed us to rebuild our infrastructure, make targeted acquisitions and double the size of the company over the last six years.”

Tops is among the largest private employers in the region and has more than 15,000 employees across its entire operations.

The six executives are not expected to be the sole owners for long, though the next move is unclear.

But when asked in 2010 about Tops’ future beyond Morgan Stanley ownership, Curci speculated the company would be refinanced or go public.

“It would probably be a refinancing, either a way where Morgan Stanley can get their money out and a new equity company comes in, or we become a publicly traded company at that point,” he said at that time.

It didn’t come as a surprise to anyone in the industry that Morgan Stanley was ready to cash out.

“They’ve been shopping the business forever, for years,” said Joe Dash, owner Dash’s Markets. “I guess it was just a matter of time.”

Dash’s Markets grew out of the former B-Kwik convenience stores, which were franchised through Tops Friendly Markets.

“Wall Street investment firms like to be out of an investment with all their money in five years, no more than six,” said Burt Flickinger III, a supermarket industry expert and managing director at Strategic Resource Group who has strong ties to the local grocery market. “From a timing standpoint, Morgan Stanley was looking for an exit.”

Without Morgan Stanley, Tops insists it’s “business as usual” at the supermarket, but Flickinger said consumers could be in for lower prices, now that Morgan Stanley is not taking a cut off the top.

“Wall Street firms tend to take out so much in professional fees as well as cash from the company,” Flickinger said.

Not having those capital burdens will allow the leadership team to reinvest in key areas and offer more aggressive pricing, he said.

Having local control will also give Tops management the authority to make the moves to address two key initiatives: returning the company to industry standards of profitability and paying down debt.

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 the company’s interest payments on its debt ate up all of its weakened operating profits, which dropped by 37 percent.

Tops’ sales grew by 6 percent during the 28-week period that ended in mid-July, rising to $1.34 billion from $1.27 billion as gasoline revenues increased by 1 percent and sales from inside the supermarket’s stores increased by 6 percent.

All of that increase came from stores that Tops had brought on through its acquisition of 21 Grand Union supermarkets last October. Excluding those stores, sales from Tops Markets that have been operating under the Tops banner for at least a year fell by 0.5 percent.

Increasing sales will be important as Tops goes up against powerhouses such as Wegmans and Walmart.

“Tops has some of the best real estate. It’s about making the properties more productive in terms of reaching higher levels of sales that the company had had before the Wall Street firms had come in,” Flickinger said. “That’s really critical, especially given the high level of sales that both Wegmans and Walmart have achieved, some of it coming from Tops.”

News Business Reporter David Robinson contributed to this report. email:

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