HOUSTON, TX and ROSEMONT, IL
US Foods and Sysco might have some more ammunition in their respective bandoliers to persuade antitrust regulators that their $8.2 billion merger is justified. Smaller competing suppliers are growing fast, further suggesting that this mega merger might have little effect on the competitive market, if at all.
Jetro Holdings LLC, which operates restaurant-supply retailers, recently bought back some of its shares at a price that values the company at $9 billion, according to Wall Street Journal. That’s almost nine times the company’s valuation ten years ago. Meanwhile, other small specialty suppliers are continuing to grow at a similar fast pace, putting increasing pressure on the merger between Sysco and US Foods.
Although Jetro is still just a small drop in the bucket compared to foodservice giants Sysco and US Foods, the company is expanding quickly. Last year, Jetro had sales of about $8 billion, while its revenue has continued to increase at double-digit percentage rates over the past several years, faster than Sysco’s, according to the Wall Street Journal. Compare this to Sysco, whose net income for its fiscal third quarter fell 10% from a year earlier, even though revenue rose 3.2% to $11.28 billion. Still, Sysco’s March and April sales were significantly stronger than the first couple months of the year, which were impacted by severe winter weather.
“Local restaurants still make up a high percentage of our business, and we need to be more productive and efficient to compete with cash-and-carry for their business,” said Sysco Chief Executive Bill DeLaney.
There’s been some discussion that the $8.2 billion merger between Sysco and US Foods might not happen simply because these two companies would represent a combined total of 27% of the market. I previously reported on this topic back in March, noting that despite US Foods/Sysco’s extensive grasp of the market, there are a few antitrust consultancies who say that the deal is still likely to happen. For more reasons how and why the merger might affect the industry, check out our previous article linked below.
While the FTC will still need to scrutinize the merger, US Foods and Sysco appear to be in a good position right now to get the deal approved. Along with the increased competitive pressure, I expect to see the merger to go through as planned.
Stay tuned to DeliMarket TV as we continue following the merger between Sysco and US Foods.