Former Safeway lead director Gary Rogers said Tuesday that he’s not surprised to see the Pleasanton grocer’s new owners are reportedly considering an IPO after taking the grocer private just three months ago.

Rogers said he could not confirm reports, initially aired Monday by CNBC, that Safeway’s new owner is considering an IPO.

Rogers, who was lead director at Safeway when the company agreed to be taken private by private equity firm Cerberus Capital Management, conceded he was a little surprised at just how quickly shares of Safeway could be once again trading publicly. Cerberus also owned Albertsons, combining the nation’s second- and third-largest conventional grocers as they go up against Walmart, which sells the most groceries in America.

The timing of a Safeway IPO might be driven by an old rule of blacksmithing that private equity firms take to heart: strike while the iron is hot.

And consumer stocks are hot, hot, hot. Valuations are soaring, with mergers and IPOs rising as consumer stocks promise robust cash flows and stable earnings. (Others taking advantage of the hot market are 3G Capital and Warren Buffett taking Heinz back to the public markets, and pocketing a hefty paper profit along the way, by acquiring Kraft Foods. The private equity owners of Hostess are also reportedly considering a sale of the company after just two years of ownership.)

“This is a very ripe market, with valuations at record levels,” Rogers said, noting the large amount of cash pumping through the global economy looking for good investment opportunities.

“Sophisticated investors know that times like these don’t last forever,” Rogers said Tuesday, from the Oakland offices of the Rogers Family Foundation. “Safeway is a good, solid earnings machine. With $1 billion in free cash flow, what’s not to like?”

Safeway also has its challenges, namely a range of rivals that include Whole Foods, Walmart, Target and Amazon, who want to eat the grocer’s lunch.

Rogers says Safeway’s combination with Albertsons makes it 1.75 times the size of the Safeway that went private. That means a larger player with greater economies of scale that’s a solid second place in the conventional grocery business, with the top spot held by Cincinnati-based Kroger.

“At a minimum, they bought time,” Rogers said of the larger Safeway. “A lot of the work was done before the merger” with Albertsons.

Despite what could be among the quickest flips in private equity history, Rogers says he has no regrets on Safeway’s sale to Cerberus, which in an earlier interview he said took all of about 10 minutes for the Safeway board to approve.

On Tuesday, Rogers reflected on Safeway’s journey over the years that could see the grocer’s shares going public for the third time in the company’s storied history.

“It’s a great American success story,” Rogers said.

Source: San Francisco Business Times