US Foods announced July 30 it has entered into a definitive agreement to acquire five operating companies collectively known as SGA’s Food Group of Companies for $1.8 billion in cash. Scottsdale, Arizona-based SGA’s Food Group of Companies generated combined 2017 net sales of $3.2 billion and employs about 3,400 people.
The deal is a huge move for US Foods’ independent operator focus, evident by its Scoop product lineups, BentoBox website offering, Tipping Point program, and more in recent years. Earlier in July, US Foods announced that its entire line of Metro Deli, Rykoff Sexton, Chef’s Line, and Stock Yards Exclusive Brand products would be produced with clean label profiles as part of the company’s Unpronounceable List initiative.
About 40 percent of SGA’s Food Group’s net sales last year focused on serving independent restaurants.
“This acquisition will significantly increase US Foods’ reach across key markets in the attractive and growing Northwest region of the U.S. and adds one of the most well-regarded regional distributors to our company,” US Foods chairman and CEO Pietro Satriano said in a statement. “With a shared commitment to customer service, including a proven track record of leveraging technology and private brands to meet customer needs, SGA’s Food Group of Companies is an ideal fit.”
SGA’s Food Group of Companies operates as five separate companies. They are:
- Food Services of America, Inc.: One of the largest regional broadline distribution companies in the U.S. serving 16 states in the West and Midwest from nine distribution centers; 75 percent of net sales.
- Systems Services of America, Inc.: Multi-unit distribution foodservice company specializing in distribution to casual and fast casual dining establishments and regional and national quick-service chains; 21 percent of net sales.
- Amerifresh, Inc.: Strong produce sourcing and marketing capabilities, 2 percent of net sales.
- Ameristar Meats, Inc.: Provider of custom meat products, including 18 different beef programs to meet customer specifications; 1 percent of net sales; and
- GAMPAC Express, Inc: Supply chain planning and logistics; 1 percent of net sales.
“The company’s unique merchandising programs, mature local sourcing capabilities and track record of operational excellence will be strong additions to our business. We look forward to welcoming the talented teams at SGA’s Food Group of Companies to US Foods, providing customers with even better service and expanded capabilities, and delivering accelerated growth and value to our shareholders,” Satriano added.
US Foods outlined some strategic and financial benefits of the deal, which it said has been unanimously approved by its board of directors.
To start, the deal expands US Foods’ network in the Northwest.
- It will increase scale and accelerate growth. SGA’s Food Group of Companies serves some 33,000 customers, 12 distribution centers, and more than 20 private brands. “In addition, combining the best of both companies’ processes and technologies, along with the potential to roll out US Foods’ leading product portfolio and suite of value-added services to the customers of SGA’s Food Group of Companies, will drive increased growth within the combined company,” US Foods said.
- It provides a synergy opportunity. US Foods said it expects to achieve about $55 million in annual run-rate cost synergies by the end of fiscal 2022, primarily driven by saving sin distribution, procurement, and administrative expenses.
- US Foods will finance the acquisition with $1.5 million in fully committed term loan financing from .P Morgan and Bank of America Merrill Lynch, and will fund the balance of the deal through its existing liquidity resources.
- It represents an attractive valuation: The purchase price reflects a multiple of 12.5 times SGA’s Food Group of Companies 2018E Adjusted EBITDA of $123 million, after taking into account the approximately $260 million estimated present value of cash tax benefits to be realized as a result of the acquisition. Including $55 million in annual run-rate synergies, the price reflects a 2018E Adjusted EBITDA multiple of 8.6 times.
- It’s accretive to adjusted earnings per share: Excluding amortization, the transaction is expected to become accretive to US Foods’ Adjusted EPS in the second full year following closing.
“For the past 46 years, we have had the vision to become a leading national foodservice company. This is an exciting milestone on our journey and provides more success and growth opportunities for our customers and our Associates,” Slade Stewart, Services Group of America executive vice president and COO, said in statement.
US Foods has made its share of purchases lately. Last April, it announced that it has agreed to acquire FirstClass Foods, a privately owned meat manufacturing company based in Hawthorne, California, with nearly $55 million in annual sales. A month before, it agreed to acquire SRA Foods, a meat processor and distributor in Birmingham, Alabama, with annual sales of approximately $80 million. Last February, US Foods said it was buying All American Foods, a broadline distributor based in North Kingstown, Rhode Island, with annual sales of nearly $60 million. In October, US Foods expanded its reach with the purchase of Jeraci Foods, an Italian specialty distributor based in Elmsford, New York. In the same month, US Foods also bought Save On Seafood, a seafood processor and distributor in St. Petersburg, Florida, with annual sales of more than $80 million.