Dollar Tree to Sell Family Dollar for $1B

A consortium of private equity firms—Brigade Capital Management and Macellum Capital Management—is buying the Family Dollar discount chain with about 8,000 stores across the U.S. for approximately $1 billion from Dollar Tree.

The deal is expected to close during the second quarter. Dollar Tree CEO Mike Creedon described the deal as a major milestone in the company’s multi-year transformation that will unlock value for Dollar Tree shareholders, help the company achieve its potential and position Family Dollar for future success.

Based in Chesapeake, Va., Dollar Tree has more than 15,000 stores across the U.S. and Canada, including the Dollar Tree, Family Dollar and Dollar Tree Canada brands. Dollar Tree bought discount store rival Family Dollar 10 years ago in a stock and cash deal worth about $8.5 billion. But the merger has been a rocky one. Last year, Dollar Tree closed more than 900 Family Dollar stores and hired JPMorgan Chase to conduct a strategic review of options for Family Dollar, including a sale or spin-off.

Few analysts and retail experts seemed surprised Wednesday when the news broke that this decade-long marriage was ending in a disposition.

“The Family Dollar sale ends a decade-long struggle and challenge for Dollar Tree who tried to assimilate and maximize the Family Dollar brand. Family Dollar was ultimately a drag on the Dollar Tree brand and minimal synergies were created,” Zach Wright, vice president at The Boulder Group, told Commercial Property Executive. “Moving forward, Dollar Tree can focus on improving their same-store sales, growth and new-store expansion.”

Creedon summed it up Wednesday during a fourth-quarter earnings call with investors by saying Dollar Tree and Family Dollar were “two different businesses with limited synergies.”

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While they are both discount retailers, there are differences in both their locations and customer base. Family Dollar stores are often located in urban areas and sell essential items including groceries and cleaning products generally ranging in price from $1 to $10. Dollar Tree stores tend to operate in suburban locations serving mostly middle-income households seeking holiday and party supplies, crafts and other products.

Dollar Tree has been moving to a multi-price format with products at a variety of price points. Dollar Tree reported Wednesday it had 2,700 of the so-called Dollar Tree 3.0 stores operating by the end of 2024, including 2,400 conversions and 300 new stores. Dollar Tree also added 162 former 99 Cents Only stores around the country after that discount retailer, which had more than 300 locations, went out of business last year.

What’s Next for Family Dollar?

During the earnings call, Creedon said there are roughly 1,000 assets that are operating as combined Dollar Tree and Family Dollar stores that will go to the new ownership and be rebranded solely as Family Dollar once the deal has closed. He also noted a Family Dollar distribution center in Odessa, Texas, will be converted to a Dollar Tree distribution center.

The new team did refer to a strategic plan for Family Dollar in the sale announcement but did not disclose any details other than bringing on Duncan MacNaughton, a former president & chief operating officer of the company, as chairman.

Wright said it’s too early to know what the new owners of Family Dollar plan to do with the portfolio.

“Everything is likely on the table including further store closures of underperforming or non-profitable locations,” he told CPE.

Family Dollar headquarters will remain in Chesapeake, Va.

Advisory teams

J.P. Morgan Securities LLC is serving as financial advisor and Davis Polk & Wardwell LLP is legal advisor to Dollar Tree.

Jefferies LLC is serving as lead financial advisor to Brigade and Macellum, and RBC Capital Markets is also serving as financial advisor for the acquisition. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal advisor. Wells Fargo, RBC Capital Markets and WhiteHawk Capital Partners are providing financing for the transaction.