(Reuters) - Sysco Corp (SYY.N), the largest U.S. food distributor, said it would buy London-based food distributor Brakes Group from Bain Capital Private Equity in a deal valued at about $3.1 billion to strengthen its presence in Europe.
Sysco’s shares fell as much as 6.5 percent, their steepest intra-day drop since May 2010, to $42.05 in midday trading on Monday.
Analysts, on a conference call, mainly questioned Sysco’s management on the timing of the deal, given the volatility in stock markets, and the price, 12 times Brakes’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA).
“This deal was totally consistent with how we have outlined our strategy over time. In terms of why now ... when it comes to acquisitions, it is usually the seller that controls the time,” Sysco’s Chief Executive Bill DeLaney said.
Brakes’s EBITDA multiple compared favorably with those of its European peers, which are somewhat higher than U.S. companies, Sysco’s Chief Financial Officer Joel Grade said.
The deal comes eight months after Sysco dropped its 18-month long pursuit of smaller rival US Foods after the Federal Trade Commission sued to block the $3.5 billion acquisition.
Sysco had bid for Brakes in 2007, when Bain bought it for about $2.8 billion, but walked away at an early stage.
Sysco said on Monday its latest offer for Brakes included the repayment of about $2.3 billion of Brakes’s debt.
Brakes put plans to list on the London Stock Exchange on hold in January due to a slump in the global stock markets, the Guardian had reported. (bit.ly/1WMIIT3)
Brakes, which started as a poultry supplier in 1958, has operations in the United Kingdom, Ireland, France, Sweden, Spain, Belgium and Luxembourg.
The combined company is expected to generate annualized sales of about $55 billion, Sysco said.
Sysco generated $806.4 million, or a little less than 2 percent, of its revenue from outside North America last year. Brakes had revenue of nearly $5 billion in fiscal 2015.
Sysco said it expects the deal to close before July and immediately add to its earnings after that.
Deutsche Bank Securities advised Sysco, while Freshfields Bruckhaus Deringer LLP and Ernst & Young LLP acted as legal and due diligence advisers.
Goldman Sachs International and Baker & McKenzie LLP were Bain Capital’s and Brakes’s financial and legal advisers.
Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Don Sebastian and Savio D'Souza