Sysco to Buy U.K.’s Brakes Group for $3.1B

The deal will increase Sysco's presence in European food service distribution but investors are concerned it is paying too much for Brakes.
Katie Kuehner-HebertFebruary 22, 2016

Sysco said Monday it would buy London-based food service distributor Brakes Group from Bain Capital Private Equity for about $3.1 billion to expand its presence in Europe.

Brakes Group has operations in Belgium, Britain, France, Ireland, Luxembourg, Spain, and Sweden, serving 50,000 customers including restaurants, hotels, hospitals and schools.

“This transaction will unite Sysco with a leading food service distributor in Europe with demonstrated capability to sustainably grow its business over time,” Sysco chief executive Bill DeLaney said in a news release.

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The deal includes the repayment of approximately $2.3 billion of Brakes’s debt and comes eight months after Sysco dropped its pursuit of smaller rival US Foods because of antitrust issues. It values Brakes at 11.9 times EBITDA compared to the 9.9 times EBITDA valuation of US Foods.

In trading Monday, Sysco’s stock fell as much as 6.5% on Monday their steepest intra-day drop since May 2010 before closing at $42.77, down more than 2%.

“For investors, not only was the price not right, but many would have preferred if Sysco’s biggest-ever acquisition was closer to home and came with some synergies to boot,” Bloomberg said.

The Brakes Group was founded by three brothers in 1958 to sell poultry to caterers in Britain and expanded into producing ready-made meals for pubs, eventually growing large enough to list on the London Stock Exchange in 1986.

Sysco’s operates food service distribution companies in the U.S., Canada, Ireland, Northern Ireland, and The Bahamas, as well as joint ventures in Mexico and Costa Rica. Brakes has “minimal overlap” with Sysco’s existing business, according to Delaney, and will be run independently.

“Sysco sees the opportunity for Brakes to take more share of the U.K.’s food-service market, where ‘food away from home’ (at restaurants, hospitals, prisons, schools, etc.) as a percentage of total food spending is 42 percent compared to 50 percent in the U.S.,” Bloomberg reported. “Sysco is expecting that percentage to increase and Brakes as the leader in the segment should benefit.”

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