SA’s Kirsh to sell US company for R500bn

Sysco Corp is acquiring Jetro Restaurant Depot LLC, the closely held wholesaler founded by billionaire Nathan ‘Natie’ Kirsh, for $29.1 billion (R499.3 billion) including debt in a deal that will create one of the largest food-service groups in the US.

Jetro shareholders will receive $21.6 billion in cash and 91.5 million Sysco shares, the companies said Monday.

The deal represents a multiple of more than 14 times Jetro’s operating income.

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Sysco supplies food to restaurants, hospitals and schools across the US and had a market value of about $39 billion as at Friday, while Jetro functions as a sort of Costco-like business for 725 000 smaller restaurant owners and food-service operators.

Shares of Sysco fell as much as 14%.

The stock had gained 11% since the start of the year through Friday’s close.

The business

Kirsh, 94, founded Jetro in 1976 and maintained tight control while expanding the business significantly.

It operates 166 large-format warehouse stores across 35 states.

The company generated about $16 billion in revenue and $2.1 billion earnings before interest, tax, depreciation and amortisation (Ebitda) last year.

By purchasing Jetro, Sysco said it will gain access to the higher-margin and growing cash-and-carry channel, which is the primary source of supply for many smaller restaurants.

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Funding the deal

Sysco plans to fund the deal with $1 billion of cash on hand and $21 billion of new debt and hybrid debt.

The company is also pausing its share buyback programme to “prioritise rapid deleveraging” after the purchase.

Jetro shareholders will own about 16% of Sysco’s stock on completion of the transaction.

The company will continue to operate as a standalone business segment within Sysco, and its existing management team will stay in place at the head office in Whitestone, New York, under President Richard Kirschner.

“The combined company will have increased purchasing efficiencies, enabling lower prices for customers,” says Sysco board chair and CEO Kevin Hourican in the statement.

“Even more importantly, we see a long runway of opening new Jetro Restaurant Depot warehouses, bringing the industry leader in affordability to hundreds of new communities and creating thousands of new jobs.”

Kirschner will report to Hourican.

Shareholders ‘not loving the deal’

“Sysco shareholders in the immediate terms don’t love the deal given the elevated multiple being paid and the transaction’s scope,” Vital Knowledge Media’s Adam Crisafulli wrote in a note.

That said, while a deal this size creates “integration/execution risk and pushes the leverage ratio higher”, it also presents a new growth opportunity for Sysco.

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Jetro has higher Ebitda multiples and free cash flow conversion than Sysco’s standalone business, Crisafulli added.

Sysco said it remains on track to meet the high end of its full-year profit outlook.

Local boy made good

Kirsh grew up in Potchefstroom, South Africa, a university town about 120km southwest of Johannesburg, where his family ran a malt business.

In his 20s, he moved into grain milling and later wholesale distribution.

He eventually acquired a South African food distributor and built it into a cash-and-carry network supplying small retailers – a model that underpinned his fortune.

Unlike many South African billionaires, whose wealth is rooted in mining or finance, Kirsh built his fortune in staple goods and distribution.

Under apartheid, formal retail was concentrated in white urban areas and white-owned companies were heavily restricted from operating in black townships, leaving a vast under-served market.

Kirsh’s wholesale network supplied independent traders who sold into those areas, creating an indirect distribution system that operated within – and benefitted from – the constraints of the time.

The Wall Street Journal reported the deal on Monday.

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