Metcash’s move to buy three businesses for a combined $560 million is a long-term play aimed at bolstering the ASX-listed company’s operations across food distribution and hardware, chief executive Doug Jones said.
The operator of retailers including IGA, Mitre 10 and Cellarbrations suspended trading in its shares on Monday to announce the acquisition of foodservice distribution business Superior Food Group, Bianco Construction Supplies and framing and truss operator Alpine Truss. The purchases will be funded through a $300 million capital raising and up to $278 million from existing cash and debt.
“What this acquisition does is it takes our existing relatively small foodservice business and makes it a nationally scaled business overnight,” Jones said.
Long-term trends point to the foodservice market growing faster than the grocery and supermarket sector, he added.
“[It’s] a natural hedge against changing consumer habits, [involving] more and more out-of-home eating and pre-prepared meals – this has been an adjacent market and positions us well from a strategic perspective and from a diversity of opportunities.”
“It’s not growth for growth’s sake, and it’s not turning our back on grocery,” he said.
Superior Food is the nation’s third-largest food distribution business and supplies to aged care homes, cafeterias and canteens within universities and schools, hotels, hospitals and mining sites, as well as fast food outlets like Domino’s, Hungry Jack’s and Subway.
Metcash sees the acquisition as an opportunity to help its food suppliers reach these new markets, as well as “extending [Superior Food’s] ranges to our supermarkets”. It will also share resources, such as logistics, transport and warehousing.
“There’s been a blurring of the line between hospitality and supermarkets more and more, and certainly I would say the best of the IGA stores lead the way in that,” Jones said, referring to ready-made and takeaway meals that he said were “a bit healthier than those made in a factory”.
Meanwhile, the $82.2 million acquisition of Bianco Construction Supplies and the $64 million purchase of Alpine Truss will bolster Metcash’s hardware portfolio, which consists of Mitre 10, Home Timber & Hardware, and Total Tools. Making up 42 per cent of total earnings, its hardware portfolio has become a growth and profit driver for Metcash.
Bianco and Alpine “align completely” and are “highly complementary” to Metcash’s broader hardware strategy, the company stated in a presentation deck to investors, pointing to broader customer offerings, higher market share and greater network expansion.
Jones has been busy in the new year: in early January, he announced a number of executive changes including the appointment of former Premier Investments and JB Hi-Fi CEO Richard Murray to the top job at Total Tools, a new boss for its liquor division, and onboarding a new chief financial officer.
For the first half of the 2024 financial year, Metcash’s profits rose 12.2 per cent to $141 million, pushed up by higher earnings from its food and liquor businesses that increased 3.6 per cent to $101.7 million and 3 per cent to $50.8 million respectively.
The ASX-listed business will lift its share trading suspension either when it completes its institutional placement or on Wednesday, whichever is earlier.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Source: Thanks smh.com