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Woolworths Group (ASX: WOW) has entered an agreement to acquire a 65 per cent stake in Australia's largest family-owned foodservice distributor PFD Food Services, as well as all its freehold properties including 26 distribution centres.
Woolworths will acquire its holding for $302 million and spend a further $249 million on the properties to be leased back to PFD, itself acting as a standalone company with the Smith family retaining a 35 per cent interest.
PFD currently operates on 70 sites and employs more than 3,000 staff, supplying product ranges including fresh and frozen meat, seafood and drygoods. Aside from Woolworths, other customers include restaurants, cafes, hospitals, schools, pubs, clubs and airlines.
The transaction implies an 11x EBITDA multiple of $57 million, assuming net debt of $157 million. Despite the challenges of COVID-19 the investment is expected to be earnings accretive in the first full year of ownership.
The retailer is hoping to have the deal over the line by the end of this calendar year, subject to approval from the competition regulator as well as customary closing conditions.
Earn-out arrangements are also in place at the end of FY22 and FY23 if earnings growth materially exceeds the business plan, while both parties in the deal have put and call options over the Smith family's remaining 35 per cent shareholding three years after completion.
Woolworths Group CEO Brad Banducci says the company is excited about the opportunity to invest alongside the Smith family in PFD Food Services.
"It is a business we have long admired and we have a shared vision for continued innovation, customer focus and investment in the food sector," he says.
"This investment is a logical adjacency for Woolworths Group and further supports the evolution of the Group into a Food and Everyday Needs Ecosystem.
"It will build on our existing partnership with PFD, the number two player in the large and fragmented out-of-home foodservice and non-retail business-to-business markets."
He says the investment will also unlock synergies for both businesses across the combined network and fleet.
"We will help to support PFD's growth through access to our logistics, digital and data analytics and operational capabilities," says Banducci.
"For Woolworths Group, it will enhance store range localisation and provide fleet synergies through better route and capacity optimisation across our combined network."
PFD will operate independently under CEO Kerry Smith, and a separate board and governance structure will be implemented with founder Rick Smith continuing to be involved.
"We are pleased to deepen our existing strategic partnership with Woolworths Group for the longer-term via their investment in our business," says Kerry Smith.
"As a family owned and operated business which prides itself on its customer and supplier relationships, it is important that PFD operates as a standalone business, run by the existing team.
"In Woolworths Group, we are confident we have found a partner with shared experience and expertise, but also whose operations and vision for the future complement our own."
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