Why Sysco Is Sinking

Following news of an acquisition, Sysco Corp. (NYSE: SYY) took a backseat to the bullish run that the broad markets made Monday. The company announced that it has reached a definitive agreement to acquire Brakes Group, a leading European foodservice distributor.

Brakes Group is owned by Bain Capital Private Equity. The transaction is valued at roughly $3.1 billion and includes the repayment of about $2.3 billion of Brakes Group’s financial debt.

In fiscal 2015, Brakes Group’s generated revenues of nearly $5 billion, a 6.5% increase from the previous fiscal year. Brakes Group supplies more than 50,000 products, including an extensive portfolio of more than 4,000 own-brand products.

At closing, the combined companies are expected to generate annualized sales of approximately $55 billion.

This deal was unanimously approved by Sysco’s board. The deal is subject to customary regulatory review by European Union competition authorities. The companies expect to complete the transaction before the end of Sysco’s fiscal year in July 2016.
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Ultimately, the transaction will expand Sysco’s footprint in the United Kingdom and Ireland, and further into Europe, and positions the company for potential future expansion in these markets.

Bill DeLaney, CEO of Sysco, commented on the transaction:

We look forward to welcoming Brakes Group, its 15,000 employees, and Ken McMeikan and his highly respected leadership team to the Sysco family of companies. This transaction will unite Sysco with a leading foodservice distributor in Europe with demonstrated capability to sustainably grow its business over time. Beginning with a common customer-centric mindset, our companies are strategically aligned with compatible cultures and similar business models. We expect to retain key members of Brakes Group’s talented leadership team and to experience little distraction from integration given the minimal overlap of the businesses. Sysco’s management team remains confident in and committed to achieving our previously announced three-year plan financial objectives.

Shares of Sysco were trading down 5.7% at $42.41 on Monday, with a consensus analyst price target of $42.36 and a 52-week trading range of $33.45 to $45.11.