The failure of US Foods Inc.’s merger with Sysco Corp. won’t keep the distributor from making deals in the future, recently appointed CEO Pietro Satriano said Tuesday.
US Foods will return to its pre-merger strategy of active acquisitions, Satriano said in a call discussing second-quarter earnings, his first since he replaced John Lederer as CEO last month.
In the couple of years before the proposed merger with Sysco, in 2013, US Foods made acquisitions to build scale in selective markets, Satriano said.
“Obviously, for the past two years, that came to a standstill,” he said. “We will now get back to a much more active stance on the (merger and acquisition) front.”
That activity is “heating up,” he said.
“A fair number of folks are interested in talking to us as a result,” Satriano said.
Most of the deals the company would likely do would be “tuck-in” deals for smaller distributors that would help US Foods build its presence in certain markets. But Satriano said, “We’ll look at everything,” including big deals.
Satriano’s comments suggest that mergers and acquisitions in the distribution industry will resume now that the Sysco-US Foods deal is dead.
Sysco, the largest broadline food distributor in the country, agreed to pay $3.5 billion for US Foods, the nation’s second-largest distributor, in December 2013. The federal government later sued to block the merger. In June, a judge agreed to its request to delay the deal pending the outcome of the lawsuit, and the distributors backed out of the merger.
As a result of the deal’s end, Sysco had to pay US Foods a $300 million breakup fee.
Acquisitions were common in the distribution industry before the deal was announced, and many expect the active merger environment to continue.
Performance Food Group, the Richmond, Va.-based super-regional distributor that was in line to buy 11 US Foods facilities if the deal went through, has made 13 acquisitions over the past seven years, according to SEC documents.
“We intend to continue pursuing selective acquisitions in order to further our competitive position in the industry and to allow us both to enter into new geographies and channels as well as to expand in existing ones,” the company said. “We believe that there are a number of attractive potential acquisition opportunities in our industry.”
On Monday, Sysco executives said they would continue to look at acquisition opportunities, including some potential international deals to build business in other countries.
US Foods has a significant amount of debt, $4.3 billion, but it also has $1.3 billion in available liquidity in the form of cash and funds available from its lending agreements.
Sales at US Foods didn’t seem to be significantly affected over the past year and a half as the company was in limbo amid the Sysco deal discussions. Net sales in the second quarter ended June 27 fell 0.9 percent, to $5.8 billion, from $5.9 billion the previous year.
Over the 12 months ended June 27, the company noted, net sales increased 2.1 percent, to $23.1 billion, from $22.6 billion the previous year.
The company recorded a net loss of $127 million, from a $19 million loss in the same period a year ago. Gross profit was $993 million, a 3-percent increase from $964 million.
“We’ve had solid results, particularly in light of the challenges facing the business,” Satriano said, noting that the company had been under the shadow of the merger for the entire quarter.
“While we were disappointed with the outcome (of the Sysco merger), that chapter is closed, and we are firmly focused on a bright future as a stand-alone business,” Satriano said.
The company’s strategy, Satriano said, is to continue with its strategy of the past four years, but with a focus on efficiency. The company closed a facility in Lakeland, Fla., and is serving customers in that area with nearby facilities. It is also closing a facility near Baltimore pending union negotiations there, the company said. US Foods opened a new distribution center in Flowood, Miss., last month.
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