Thwarted at home, Houston-based Sysco is looking abroad for future growth. The largest US food distributor on Monday agreed to acquire London’s Brakes Group for $3.1 billion, including the repayment of about $2.3 billion in debt, to strengthen its presence in Europe.
The deal comes just eight months after Sysco called off its 18-month-long quest for rival US Foods, the second-largest food service operator in the US. The $3.5 billion merger faced stiff opposition from regulators who claimed the tie-up was anticompetitive and would hurt consumers by leading to higher prices amid further consolidation of an already concentrated industry.
An attempt by the companies to win approval for the deal by offering to sell about a dozen distribution centers with some $5 billion in sales to the industry’s third-largest company, Performance Food Group, failed to satisfy regulators.
Sysco, which generates only about 2% of its sales outside North America, says the deal will extend its footprint in the UK and Ireland and further into Europe, where it’s eyeing potential future expansion. A leading food service distributor in Europe, Brakes Group has operations in Belgium, France, Ireland, Luxembourg, Spain, Sweden, and the UK. It employs some 15,000 people and supplies food to pubs, restaurants, hotels, hospitals, schools, and caterers.
Sysco and Brakes Group, which will continue to operate as a stand-alone company, will have combined annual sales of about $55 billion. Sysco is hungry for growth after announcing a three-year plan that targets at least $400 million in annualized operating growth and a 15% return on invested capital by fiscal 2018. Sysco’s management said in a statement that it’s on track to deliver.
Still, news of the deal sent Sysco’s shares down as much as 6.5% on Monday. By comparison, its shares soared up to 26.5% in December 2013 when Sysco announced the US Foods deal, according to Bloomberg, which blamed the discrepancy partly on cost synergies. The US Foods deal promised up to $600 million in cost savings annually within four years, while Sysco’s latest deal is short on synergies.
The deal, which has been approved by Sysco’s board, will be subject to review by European competition authorities. The companies expect to complete the transaction by July 2016.
Alexandra Biesada shops every day, whether she wants to or not, and pines for the days when it was strictly a recreational activity. She has covered the retail beat for Hoover’s since 2001. Follow her on Twitter.