Woolworths Group intends to extend its strategic partnership with PFD Food Services by acquiring a 65% equity interest, with the Smith family retaining 35%
Woolworths Group will also acquire PFD's freehold properties
Total purchase price for the 65% equity interest and freehold properties of $552 million (excluding net debt)
PFD will continue to operate as a standalone business, retain senior leadership team and partner with Woolworths Group to deliver better experiences for customers
Overview and rationale
Woolworths Group today announces it has agreed to extend its strategic partnership with PFD Food Services, one of Australia’s leading foodservice suppliers, by acquiring a 65% equity interest in the business. Woolworths Group will also acquire 100% of PFD’s freehold properties which primarily comprise 26 distribution centres.
Woolworths Group CEO, Brad Banducci, said: “We are excited by 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. We look forward to delivering even better experiences together for our customers as we continue to respond to their changing needs in a post COVID world.
“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.
“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. 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. A separate board and governance structure will be implemented, with Rick Smith, the founder of PFD, continuing to be involved.
PFD Food Services CEO, Kerry Smith, said: “We are pleased to deepen our existing strategic partnership with Woolworths Group for the longer-term via their investment in our business. 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.”
Transaction details
Woolworths Group will initially invest $302 million in PFD to acquire a 65% equity interest. The transaction implies a multiple of 11x pre-AASB 16 EBITDA of $57 million assuming net debt of $157 million1. Woolworths Group will also acquire PFD's freehold distribution centre properties for $249 million which will be leased back to PFD.
Like many other businesses, PFD’s current earnings have been impacted by COVID-19. Despite this, the investment is expected to be earnings per share accretive in the first full year of ownership and deliver a strong return on investment to Woolworths Group.
The transaction is subject to an earn-out at the end of F22 and F23 if earnings growth materially exceeds the business plan. Put and call options have also been granted to the Smith family and Woolworths Group respectively over the Smith family's remaining 35% shareholding, exercisable from the third anniversary of completion.
The transaction is subject to ACCC approval and the satisfaction of customary closing conditions with completion expected by the end of calendar year 2020. The purchase price will be funded from existing cash reserves and available debt facilities and is not expected to affect the
Woolworths Group’s existing credit metrics.