US food distribution giant Sysco wants to use Brakes as the engine for its ambitious European expansion plans after buying the delivered wholesaler for $3.1bn this week.
Brakes will continue to operate as a standalone outfit, led by CEO Ken McMeikan and the existing management.
McMeikan said Sysco had bought into Brakes’ existing five-year growth plan and was “totally convinced this leadership team knew what needed to be done”.
Over 20 years Brakes has inked more than 20 acquisitions to drive its annual revenues to nearly $5bn (£3.3bn), a 6.5% increase from the previous year, with Fresh Direct and Davigel, the most recent bolt-ons, boosting its capacity in terms of expertise and geographic reach.
But there was a lot more to come said McMeikan. “For now the expectation is that it will very much be business as usual, but as time progresses there is a compelling growth story of expansion throughout Europe.
“We have an incredibly strong pipeline for potential future acquisitions.”
Brakes would function as a “European engine of growth” for Sysco as it planned to build on last year’s acquisition of ice cream and frozen goods manufacturer Davigel from Nestlé, which gave it a footprint in France, Spain, Belgium and Luxembourg.
McMeikan predicted that immediate acquisitions were likely focus on building its presence in its existing major markets - the UK, France and Sweden. In France, he pledged that Brakes would be a “main consolidator” as it has just a 6% share of a market he describes as “very fragmented”.
Despite its market leading UK position of 21% Brakes still had “more opportunity for headroom”, he added.
“The growth opportunities are exciting and tangible and we have a leadership team that has a great track record of delivering accretive acquisitions,” he said.
He also suggested growing further in its secondary markets of Spain, Belgium and Luxembourg and finally moving into new European territories were also longer term aims.
In 2014 private equity owners Bain Capital shifted the three Brakes fresh-focused businesses into its newly acquired Fresh Direct business.
McMeikan said the sale of Brakes will not have an effect on the Fresh Direct Group joint venture which will continue to house M&J Seafood, Pauleys and Wild Harvest and has so far been a “fantastic success for us in terms of our expansion in fresh foods”.
A spokesman for Brakes said: “The total Fresh Direct Group business will be fully transferred as part of the Sysco acquisition when the deal is completed.”
Former owner Bain Capital had actively been working on a process to float Brakes, but despite the downturn in global capital markets it remained the preferred option until as recently as last Monday, added McMeikan, until the compelling nature of Sysco’s offer saw a trade sale prevail. The deal is expected to complete before the end of July, pending EU clearance. from EU competition regulators.
EU competition authorities are examining the deal because of the respective size and scale of the businesses, but overlap is minimal and clearance is not expected to be problematic.
Sysco was forced to abandon its planned $3.5bn acquisition of rival US Foods last year after a federal judge found the deal had the potential to raise food prices for US hotels and restaurants.
The UK foodservice market is facing disruption after Compass Group signed a direct supply deal with global logistics operator DHL in January to provide catering to corporate customers.
However, McMeikan said the UK growth prospects of Brakes, which won a £300m Compass contract from Bidvest in 2012, would not be unduly dented by this new development. “The DHL/Compass arrangement is not in a part of the foodservice market that we would particularly look to operate in,” he said.
“The out of home food market has been growing very strongly over the past 30 years,” he explained, “We still have a relatively small share of smaller independent customers and we are leading the way with some developments in e-commerce.
“We still see continued significant growth opportunities in the UK foodservice market,” he added.
The deal, which includes the repayment of approximately $2.3bn of Brakes’ financial debt, is worth 12 times Brakes Group’s 2015 adjusted EBITDA of approximately £184m.
Bain Capital bought Brakes for around €1.3bn (then worth £880m) in 2007.
Sysco CEO Bill DeLaney commented: “This transaction will unite Sysco with a leading foodservice distributor in Europe with demonstrated capability to sustainably grow its business over time.
“We expect to augment this growth by leveraging our combined scale to provide our customers with an even more competitive offering,” he added.
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