US Foods Holding Corp. 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 $1.8 billion 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 $3.2 billion and approximately 3,400 employees. 

“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,” commented US Foods Chairman and CEO Pietro Satriano. “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. 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.”

Services Group of America Executive Vice President and COO Slade Stewart said, “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.”

Compelling Strategic and Financial Benefits

• Complementary Geographic Footprint: The transaction expands US Foods’ network in the attractive and growing Northwest.
• Increased Scale and Accelerated Growth: SGA’s Food Group of Companies approximately 33,000 customers, 12 distribution centers and more than 20 private brands will enhance US Foods’ overall scale. 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.
• Attractive Synergy Opportunity: US Foods expects to achieve approximately $55 million in annual run-rate cost synergies by the end of fiscal 2022, primarily driven by savings in distribution, procurement and administrative expenses.
• Attractive Valuation: 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 $55 million in annual run-rate synergies, the price reflects a 2018E Adjusted EBITDA multiple of 8.6x.
• Accretive to Adjusted EPS: Excluding amortization, the transaction is expected to become accretive to US Foods’ Adjusted EPS in the second full year following closing.

Acquisition Financing Details

US Foods will finance the acquisition primarily with $1.5 billion 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.

Centerview Partners is acting as financial advisor to US Foods, Cravath, Swaine & Moore LLP is acting as its legal advisor, and KKR Capital Markets is acting as its debt capital markets advisor. Morgan Stanley & Co. LLC is acting as financial advisor to Services Group of America, and Davis Polk & Wardwell LLP is acting as its legal advisor.