Lending Association

Bargain Monday: Metcash reveals 3-for-1 deal

It must have been ‘Bargain Monday’ at Metcash (ASX:MTS), with the country’s third-ranking listed retail group revealing a three-for-the-price-of-one deal. They announced three purchases in food and hardware, along with a $300 million placement to big shareholders.

Metcash stated that it would acquire the private food services provider, Superior Food Group, for a total enterprise value of $412.3 million. They are also purchasing Bianco Construction Supplies, a construction and industrial supplies business servicing the South Australia and Northern Territory trade markets, for an enterprise value of $82.2 million, and Alpine Truss, one of Australia’s largest Frame & Truss operators, for an enterprise value of $64 million.

The three deals have an enterprise value at the time of purchase of $558 million. This includes debt and does not represent the cash value. For Superior Food Group, Metcash provided a cash value of $390 million, plus a $22.3 million earn-out.

According to Metcash, the acquisition of Superior Food Group is a “logical extension of Metcash’s Food strategy” and will enhance their core food wholesale and distribution capabilities. It solidifies Metcash’s position as the largest wholesaler and distributor of food to independent businesses in Australia.

Regarding the hardware acquisitions, Metcash stated that they support the Independent Hardware Group’s ‘Whole of House’ and network expansion strategies.

In addition to the $300 million raised from major shareholders, Metcash is seeking a more modest $25 million contribution from retail shareholders. This reflects the deal’s limited appeal to smaller shareholders.

Metcash will fund $278 million from existing cash reserves and the placement, which will be offered at $3.35 per Metcash share, representing an 8% discount to the last price of $3.64 before the trading halt on Friday. The placement is expected to be completed today, with the trading halt remaining in place until then. The retail issue will be offered at the same price, up to a maximum of $30,000 worth of shares.

Superior Foods is the major deal, with Metcash reporting $1.3 billion in revenue for the year ending October 31 and underlying EBITDA of $43.8 million. It operates 23 branches across Australia with a total warehouse space of approximately 80,000 square meters and manages a fleet of around 290 vehicles making about 670,000 annual deliveries.

Metcash CEO Doug Jones expressed enthusiasm for the acquisitions, stating, “We are delighted to announce three strategically aligned, synergistic, and financially compelling acquisitions that accelerate our growth strategy. The acquisitions unlock substantial shareholder value and build on our track record of disciplined and accretive capital allocation. They also deliver further diversification and resilience to the Group and provide Metcash with an even stronger growth trajectory. The acquisitions provide a range of benefits for both Metcash and our network customers, allowing us to continue Championing Successful Independents in support of thriving local communities, which is at the heart of everything we do.”