US Foods to Acquire Smart Foodservice Warehouse Stores

Accelerates Growth with Independent Restaurant Customers Through Expanding Cash and Carry Channel

US Foods Holding Corp. (NYSE: USFD) last week announced that it has entered into a definitive agreement to acquire Smart Foodservice Warehouse Stores from funds managed by affiliates of Apollo Global Management, Inc. (NYSE: APO) (the “Apollo Funds”) for $970 million in cash.

Smart Foodservice operates 70 small-format cash and carry stores across California, Washington, Oregon, Idaho, Nevada, Utah and Montana that serve small and mid-sized restaurants and other food business customers with a broad assortment of products. Founded in 1955 and headquartered in the greater Portland, Oregon area, Smart Foodservice employs approximately 900 associates. Smart Foodservice had 2019 revenues of approximately $1.1 billion and approximately $85 million in Adjusted EBITDA (including standalone cost estimates).

“As we continue to expand our multi-channel strategy, we know customers, particularly independent restaurants, increasingly use cash and carry as a convenient, cost-effective purchasing option,” said US Foods chairman and CEO Pietro Satriano. “With an established footprint and a consistent record of profitable growth, Smart Foodservice will complement our CHEF’STORE cash and carry model and provide a platform to significantly accelerate our presence in this attractive, growing channel.”

Derek Jones, President of Smart Foodservice, commented, “The management team at Smart Foodservice very much looks forward to working with the team at US Foods in accelerating our growth in the attractive cash and carry foodservice market. US Foods is an ideal partner for Smart Foodservice and we are excited about the synergistic and strategic benefits of the combination.”

Andrew Jhawar, Senior Partner of Apollo and Head of the Consumer & Retail industry group, added, “We are pleased that Smart Foodservice will be able to thrive with a strong complementary partner in US Foods. We would like to thank Derek Jones and all of the employees at Smart Foodservice for their dedication in building a highly differentiated business in the cash and carry industry, and we know the company will be in great hands with its new owners.”

Strategic and Financial Benefits

  • Cash and carry is a large, attractive and growing channel of the food service industry: The $17 billion cash and carry channel of the foodservice industry is growing at 4-5% annually. This channel is especially relevant with small and mid-sized independent restaurants seeking a convenient, cost effective purchasing option.
  • Cash and carry accelerates profitable growth with independent restaurants: Cash and carry provides opportunities to reach new customers who prefer a self-serve model and offers an additional channel for growth with existing customers. US Foods sees higher case volume growth with customers who place delivered orders and purchase through existing CHEF’STORE cash and carry locations.
  • Smart Foodservice is a proven model that provides significant expansion opportunities: Smart Foodservice brings a strong record of profitable growth and US Foods is well positioned to continue to expand its small store model into new markets. This acquisition will complement the company’s existing CHEF’STORE cash and carry model.
  • Immediately accretive to Adjusted Diluted EPS: The transaction is expected to be accretive to Adjusted Diluted EPS in the first year post close, growing to be mid-single digit accretive as synergies are realized.
  • Attractive synergy opportunity: US Foods expects to achieve approximately $20 million in annual run-rate cost synergies by 2024, primarily through purchasing efficiencies and expansion of private brand products.

Acquisition Details

The transaction announced today excludes the Smart & Final retail grocery business, which was separated from Smart Foodservice prior to the execution of the definitive agreement.

US Foods will finance the acquisition primarily with $700 million in fully committed financing from Citigroup and Bank of America and will fund the balance of the purchase price through its existing liquidity resources. At the closing of the acquisition, US Foods’ pro forma net leverage is expected to be approximately 4.0x reducing to approximately 3.0x by the end of fiscal 2021. After closing, Smart Foodservice will operate as a separate operating unit within US Foods, with minimal integration required. As a result, this transaction is not expected to have any material impact on the ongoing integration of the Food Group business, which remains on track.

The acquisition is subject to regulatory approval and other customary closing conditions.