M&A

US Foods Boosts Hopes of Warmer IPO Market

Investors enjoyed about an 8% first-day pop in US Foods, the first major leveraged buyout to go public since last year.
Matthew HellerMay 26, 2016

Shares of US Foods surged Thursday after its initial public offering raised $1 billion, fueling hopes that the new-issue market is warming up after a protracted freeze.

The nation’s second-largest food distributor priced Wednesday’s IPO at $23 a share, at the upper end of its target range. The offering, the second-largest in the U.S. this year, will enable US Foods to pay down part of its roughly $5 billion in debt.

In trading Thursday, the stock was up 7.6%, at $24.76, on volume of 25 million shares.

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“US Foods … has been followed closely by buyout firms because it is the first major leveraged buyout going public since stock market jitters put such debt-laden offerings on ice at the end of last year,” Reuters said.

The company is owned by private-equity firms Clayton Dubilier & Rice LLC and KKR, which acquired it for just over $9 billion nine years ago at the height of the LBO boom. A deal to sell US Foods to rival Sysco for $3.5 billion was scrapped last year after a federal judge ruled the merger would be harmful to competition.

After previously paying themselves a big dividend, paying off debt, and boosting revenue, Clayton Dubilier and KKR have roughly doubled their investment on paper, according to The Wall Street Journal.

Excluding the IPO of US Foods, only 29 companies had gone public in the United States so far this year. They raised $5.4 billion, a decline of more than 60% from the year-ago period.

As the WSJ reports, a total of seven companies were set to go public this week, the busiest week for IPOs since July. But the pace is expected to remain far below recent years’ levels, according to market participants.

US Foods is only the third private equity backed IPO to have raised more than $1 billion since the start of 2015. The largest offering so far this year is that of real estate investment trust MGM Growth Properties, which raised $1.2 billion last month, according to the WSJ.