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When it comes to retail, cash-rich private-equity shops are mounting a race to the bottom.
Apollo Management — the New York buyout firm headed by billionaire Leon Black — is about to become the latest entrant, as it is preparing a bid to acquire 99 Cents Only Stores, a 285-store deep-discount chain based in City of Commerce, Calif., The Post has learned.
The 29-year-old chain’s founding family, which controls one-third of the retailer’s shares, earlier this year partnered to take the chain private with rival PE firm Leonard Green & Partners for $19.09 a share, or $1.3 billion.
But the family, after being wooed by Apollo, has signaled in recent days that it is willing to change dance partners and support the highest bidder, sources said. As a result, 99 Cents this week set a bidding deadline.
An Apollo spokesman declined to comment. 99 Cents didn’t respond to requests for comment.
“Instead of saying Leonard Green is not paying enough, [99 Cents] is saying [Leonard Green] needs to have its bid ready by mid-September,” according to one source.
Leonard Green was surprised by the abrupt end to months of one-on-one talks with the retailer’s founding Schiffer/Gold family, the source added.
Nevertheless, Apollo may not be home free.
Still other buyout shops could join a late frenzy for 99 Cents, sources said, as the retailer’s no-frills dollar stores have lately become one of the sexiest business models on Wall Street.
While the shaky debt markets have cooled most retail buyout speculation of late, 99 Cents “is viewed as counter-cyclical, better in a tough market,” and financing a deal isn’t expected to be a problem, a source said.
The ubiquitous chain, which has $1.4 billion a year in revenue and no debt, saw same-store sales grow by 5.9 percent in the most recent quarter, fueling a 5.3 percent gain in profits. The average transaction at the California-focused retailer, where more than 50 percent of revenue comes from food and grocery, rose to $9.70.
Last week, Warren Buffett’s Berkshire Hathaway disclosed it had made a $48 million investment in Dollar General, the nation’s No. 1 super-discounter. Its biggest investor is private-equity giant KKR, which took it public in 2009 after acquiring the retailer two years earlier.
“I think it simply tells you that Buffett expects a worsening economy and more people shopping at dollar stores,” said Mark Montagna, a retail analyst at Avondale Partners.
With a double-dip recession threatening the US, dollar stores have been steadily stealing wallet-conscious customers from Walmart with lower prices and smaller, easier-to-shop stores.
Such a position in the retail ecosystem has also drawn the attention of savvy investors, including Nelson Peltz. The New York billionaire offered this spring to acquire Family Dollar for $7 billion, spurring speculation that he was looking to jumpstart a buyout bidding war.