Sysco Buys US Foods for $3.5 Billion (with a “B”)

by Adam on December 9, 2013

I suppose it has something to do with the holiday season or the end of the year that money is flying around so freely. Last week, we had the announcement about the E La Carte partnership with Applebee’s, and today Sysco announced a deal to buy US Foods for $3.5 billion (and yes, that is with a “B”)! While the deal was announced, it hasn’t been finalized yet and there are likely still some regulatory and anti-trust hurdles that need to be jumped through. You can read the full announcement here:

http://dealbook.nytimes.com/2013/12/09/sysco-to-buy-us-foods-for-3-5-billion/?hpw&rref=business&_r=0

The deal is remarkable for a variety of reasons:

  • On a macro-level, while there have been a number of M&A deals in the food/food startup space, they have tended to be on in the low millions (the acquisition of All Recipes for $175 million notwithstanding). This is the first billion dollar deal I’ve seen come across my desk in a while on the food front (and when taking into account US Foods debt obligations, the deal is actually valued at upwards of $8B), and while both the acquirer and the acquired could be considered “big business” players, overall it sends a positive signal for future M&A activity in the food space.
  • The acquisition gives Sysco a substantial portion of the market for food distribution. While many of us will be familiar with Sysco’s work on college campuses across the country, you may be surprised to learn that they also service high-end restaurants like Per Se and The French Laundry. With this acquisition, Sysco will control 25% of the food distribution marketplace (and, according to the article, the next closest competitor controls only 5%). With such a large part of the marketplace, one can only assume this deal will be subject to scrutiny from governing bodies.
  • With further consolidation in the food distribution space, product manufacturers have to wonder whether this move provides an opening to up-and-coming independent food distribution companies, or signals a tightening of the market that will make it difficult for smaller brands to find a market. I’m not sure of the answer, but I do hope it leads to further competition.

While news of the deal is just coming out, I’m sure we’ll have much more information about whether it gets a green-light, and over what time period the transition will occur in the coming months.

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