Sysco to Buy Brakes, Top European Foodservice Distributor
Houston, Texas-headquartered Sysco Corporation, North America’s largest distributor of foodservice products, announced on February 22 that it has reached a definitive agreement to acquire Brakes Group, a major European foodservice distributor. Owned by Bain Capital Private Equity, the London-based company has operations in the United Kingdom, Ireland, France, Sweden, Spain, Belgium and Luxembourg.
The deal, which is valued at $3.1 billion (approximately £2.2 billion) and includes the repayment of $2.3 billion of Brakes Group’s financial debt, comes eight months after Sysco gave up on plans to acquire Rosemont, Illinois-headquartered US Foods after the Federal Trade Commission in Washington prevailed in a lawsuit to block the $3.5 billion sale.
The pending transaction will expand Sysco’s footprint in the UK and Ireland, further extend its reach into continental Europe, and position the company for potential future expansion in these markets. The deal, which is subject to customary regulatory review by European Union competition authorities, is expected to be finalized before the end of Sysco’s fiscal year in July of 2016.
Brakes Group will operate as a standalone company within Sysco. The business will continue to be led by CEO Ken McMeikan, whose management team and the rest of the 15,000-person employee base will remain in place.
“This transaction will unite Sysco with a leading foodservice distributor in Europe with demonstrated capability to sustainably grow its business over time,” said Bill DeLaney, Sysco’s chief executive officer. “Beginning with a common customer-centric mindset, our companies are strategically aligned with compatible cultures and similar business models.”
“It’s very exciting for Brakes Group to be joining the recognized worldwide leader in foodservice distribution,” stated McMeikan. “Last year we said we would look for the best strategic option for our next stage of development. We are delighted to have now concluded this process by joining Sysco. Similar to Sysco’s approach, Brakes Group serves thousands of customers every day, including pubs, restaurants, hotels, hospitals, schools, contract caterers and more. We have continued to flourish in recent years, and the significant investment that has been made in Brakes Group provides us with a very solid platform for further growth as part of Sysco.”
“Since we bought Brakes Group in 2007, the business has been transformed with capital investment of more than £100 million in an e-commerce platform, multi-temperature distribution infrastructure, and customer service enhancements,” said Dwight Poler, a managing director of Bain Capital Private Equity. “There is still a huge market opportunity ahead that I am confident Brakes Group is very well placed to deliver with Sysco.”
Sysco had originally sought to buy Brakes nine years ago, when Bain acquired it for £1.3 billion (about $1.83 billion), but reportedly decided to exit the bidding process at an early stage.
Brakes Group Operational Details
In fiscal 2015, Brakes’ revenues totaled nearly $5 billion (£3.3 billion), a 6.5 percent increase from the previous fiscal year. The group has leading market positions in the UK, France and Sweden, in addition to a significant presence in Ireland, Belgium, Spain and Luxembourg.
The company was established in 1958 by William, Frank and Peter Brake as a poultry supplier to caterers in Great Britain. It is a top foodservice provider in Europe by revenues, supplying an extensive range of frozen, refrigerated and fresh food, as well as non-food products to more than 50,000 customers.
Brakes Group supplies more than 50,000 products, including an extensive portfolio of over 4,000 private label items. The innovative own-brand portfolio assists professional caterers in producing high-quality meals.
Brakes Group companies include: Brakes, Brakes Catering Equipment, Brake France, Country Choice, Davigel, Freshfayre, M&J Seafood, Menigo Foodservice, Pauley’s, Wild Harvest and Woodward Foodservice.
“We have complete confidence that Ken’s team will achieve its planned business objectives,” DeLaney said. “We expect to augment this growth by leveraging our combined scale to provide our customers with an even more competitive offering.”
Currently, Sysco’s family of foodservice distribution companies includes operations in the USA, Canada, Ireland, Northern Ireland and the Bahamas, as well as joint ventures in Mexico and Costa Rica. Additionally, Sysco International Food Group (IFG) provides services to a number of multi-national contract customers conducting business in many different countries.
At closing, it is anticipated that the companies will generate annualized sales of approximately $55 billion. The purchase price, the refinancing of Brakes Group’s debt, and other fees and expenses in connection with the transaction are expected to be financed with new debt, commercial paper and cash on Sysco’s balance sheet. The acquisition of Brakes Group will be immediately accretive to Sysco’s earnings.
The multiple for this transaction is approximately 12 times Brakes Group’s calendar year 2015 adjusted EBITDA of approximately £184 million. This multiple approximates Sysco’s current trading multiple. In addition, the expected internal rate of return for the transaction is approximately 13 percent.
“Our strong financial position and free cash flow allow us to pursue this proposed acquisition, while maintaining our current capital allocation strategy,” DeLaney said. “We remain committed to reinvesting in our business, growing our dividend, expanding our business through strategic acquisition and repurchasing shares opportunistically.”
Sysco is ranked as the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. The company operates 196 distribution facilities serving approximately 425,000 customers. For fiscal year 2015, which ended on June 27, the company generated sales of more than $48 billion.