US Foods to acquire SGA’s Food for $1.8B

US Foods to acquire SGA’s Food group of Companies for $1.8B 

US Foods to acquire SGA's Food for $1.8B, Stockwinners
US Foods to acquire SGA’s Food for $1.8B, Stockwinners

US Foods (USFD) and Services Group of America announced that they have entered into a definitive agreement under which US Foods will acquire five operating companies collectively known as SGA’s Food Group of Companies, for $1.8B in cash.

The transaction has been unanimously approved by US Foods’ Board of Directors.

Headquartered in Scottsdale, Arizona, SGA’s Food Group of Companies has combined 2017 net sales of $3.2B and approximately 3,400 employees.

SGA’s Food Group of Companies currently operates as five separate operating companies.

US Foods will finance the acquisition primarily with $1.5B in fully committed term loan financing from J.P. Morgan and Bank of America Merrill Lynch and will fund the balance of the purchase price through its existing liquidity resources.

At the closing of the acquisition, US Foods’ pro forma net leverage is expected to be 4.1x.

Given the combined company’s strong cash flow generation, including synergies, US Foods expects to reduce net leverage to approximately 3.0x by the end of fiscal 2020. The acquisition is subject to regulatory approval and other customary closing conditions.

US Foods expects to achieve approximately $55M in annual run-rate cost synergies by the end of fiscal 2022, primarily driven by savings in distribution, procurement and administrative expenses.

The purchase price reflects a multiple of 12.5x 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 $55M in annual run-rate synergies, the price reflects a 2018E Adjusted EBITDA multiple of 8.6x.

Excluding amortization, the transaction is expected to become accretive to US Foods’ Adjusted EPS in the second full year following closing.

USFD closed at $40.60.


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