US Foods Holding Corp., Rosemont, Ill., and Services Group of America (SGA), Scottsdale, Ariz., entered into an agreement under which US Foods will acquire five operating companies collectively known as SGA’s Food Group of Companies for $1.8 billion.

SGA’s Food Group of Companies hosts approximately 3,400 employees and operates as five separate operating companies:

  • Food Services of America, Inc. (FSA). A regional broadline distribution company serving 16 states in the West and Midwest from nine distribution centers.
  • Systems Services of America, Inc. (SSA). Multi-unit distribution foodservice company specializing in distribution to casual and fast casual dining establishments and regional and national quick-service restaurant (QSR) chains.
  • Amerifresh, Inc. Strong produce sourcing and marketing capabilities.
  • Ameristar Meats, Inc. Provider of custom meat products, including 18 different beef programs to meet customer specifications.
  • GAMPAC Express, Inc. Supply chain planning and logistics.

“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,” says Pietro Satriano, chairman and CEO of US Foods. “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.”

“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,” adds Slade Stewart, executive vice president and COO of SGA.

The strategic and financial benefits entail:

  • Complementary geographic footprint. The transaction expands US Foods’ network in the 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’ 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.