US Foods Holding Corp. on Monday said it has acquired a group of food distribution companies known as SGA’s Food Group of Companies, including regional distributor Food Services of America, for $1.8 billion in cash.
The deal is designed to bolster the Rosemont, Ill.-based US Foods’ presence in the Northwest—SGA’s stronghold—while supplementing the company’s efforts with independent restaurants.
The deal gives US Foods five companies that together generated a total of $3.2 billion in sales last year, with 33,000 customers, 12 distribution centers and more than 20 private brands.
“This acquisition will significantly increase US Foods’ reach across key markets in the attractive and growing Northwest region of the U.S.,” US Foods CEO Pietro Satriano said in a statement.
In a conference call Monday morning, Satriano said that SGA is “one of the most well-regarded regional distributors” and operates a “complementary geographic footprint” to US Foods.
The deal continues a consolidation in the business of distributing supplies to restaurants and other foodservice providers in recent years. Both US Foods and rival Sysco, the country’s two largest broadline distributors, have been gobbling up smaller competitors.
US Foods’ latest acquisition includes five companies, the two biggest being FSA and Systems Services of America, or SSA.
US Foods is the second largest broadline distributor behind Sysco, according to Technomic’s 2018 Power 50 U.S. Broadline Distributor Report. FSA is the ninth largest distributor on the ranking.
FSA is a large regional broadline distributor that serves 16 states in the West and the Midwest from nine distribution centers. It accounts for three quarters of SGA’s sales. Satriano said on the conference call that FSA has an “attractive mix of customers,” including 40% independents.
US Foods has been targeting independent restaurants in recent years.
The other big company is System Services of America, a multiunit distribution company that includes casual and fast-casual restaurants and regional and national fast-food chains among its customers. SSA represents 21% of the group’s net sales.
The other three companies are Amerifresh, a produce sourcing and marketing company, custom meat products company Ameristar Meats, and supply chain planning company Gampac Express.
The deal gives US Foods a bigger foothold in some of the fastest growing states in the country, said Joe Pawlak, managing principal with Technomic. It also gives the company a “solid portfolio of center-of-plate proteins and produce” that are critical to many operators’ businesses.’
“By acquiring SGA, US Foods will become an even more important supplier to the operator,” Pawlak said.
Investors were unimpressed with the deal. US Foods’ stock plunged more than 17% on Monday. Rival distributor Sysco, meanwhile, saw its own stock fall well over 6%.
One factor in the decline at US Foods: The company reported disappointing earnings, notably a 0.9% decrease in total case volume in the quarter ended June 30. Satriano called the quarter “disappointing on the volume side” but said the causes were temporary.