Dollar Tree sells Family Dollar to private equity firms after a decade

Dollar Tree is selling Family Dollar to a pair of private equity firms for $1 billion after a decade trying to make its acquisition of the bargain chain fit.

Dollar Tree Inc. acquired Family Dollar for more than $8 billion in 2015 after a bidding war with rival Dollar General, but struggled to make it fit.

Last year Dollar Tree announced that it planned to close hundreds of Family Dollar stores. The company also said at the time that it would record a $950 million impairment against the trade name Family Dollar, on top of a $1.07 billion goodwill charge.

The company had been scouting options for Family Dollar for a while and it said Wednesday that the sale to Brigade Capital Management and Macellum Capital Management will allow it to focus on its core business.

“This is a major milestone in our multi-year transformation journey to help us fully achieve our potential,” said Mike Creedon, who was made permanent chief executive officer of Dollar Tree late last year.

Neil Saunders, managing director of GlobalData, said that after acquiring the rival chain, Dollar Tree struggled with supply chain issues, poor store locations and other operational difficulties.

“Basically, Dollar Tree bit off far more than it could chew,” he said.

But Dollar Tree had little room to maneuver, particularly in the months leading up to the sale. Americans have been tightened their spending, even at bargain chains, as consumer confidence in the economy slides.

Adding to the difficulties, bargain stores like Dollar Tree and Family Dollar have been dealing with consumers tightening their spending as they watch prices escalate.

Family Dollar, which moved its headquarters from North Carolina to Chesapeake, Virginia, after the sale, will maintain its headquarters in Virginia.

“This transaction presented a unique opportunity to play a key role in reinvigorating an iconic business,” Jonathan Duskin, CEO and Partner of Macellum, said.

The deal is expected to close later in the second quarter.

Shares of Dollar Tree rose 4% before the opening bell.