Metcash unveils three acquisitions spread across food and hardware

Metcash chief executive Doug Jones has begun a company-wide transformation of his wholesaler business that will result in it lowering its exposure to the supermarket sector.

Metcash chief executive Doug Jones has begun a company-wide transformation of his wholesaler business that will result in it lowering its exposure to the supermarket sector as the industry is facing multiple public inquiries and political heat, lifting its exposure to food services, construction and hardware.

However, Mr Jones said the decision to spend almost $600m on three acquisitions – taking in food services and distribution company Superior Food, Bianco Construction Supplies and frame and truss specialist Alpine Truss – was not related to the pressure on the supermarket sector but rather a “natural hedge” against shifting consumer demand.

Mr Jones said the deal to buy leading food service distribution business Superior Foods for $412.3m was not about reacting to the various supermarket inquiries under way, from the ACCC to a Senate price inquiry, but would help bolster its existing foods arm and benefit from the expected faster pace of growth in food distribution into venues and stores compared to lower growth for the supermarket sector.

“It is not driven by inquiries or what may come out of it,” Mr Jones told The Australian. “This makes our core grocery business stronger over time and we think it’s a reason to be excited for our customers, and it allows us to really deepen our differentiated value proposition.”

Mr Jones said did not believe that Metcash, which wholesales food and groceries to thousands of independent supermarkets such as IGA and Ritchies, was the target of the inquiries, especially when it came to misuse of market share and pricing, as is the brief for the Senate inquiry into super­markets.

On Monday food, liquor and hardware wholesaler Metcash chose to radically grow its market size as it strives to better compete with its much larger retail rivals Woolworths and Coles by announcing three acquisitions for a total of $558m spread across food services and construction.

Metcash, known for its supermarket banners such as IGA as well as its hardware chains like Mitre 10, will expand into food services with the purchase of ­Superior Food for $412.3m and has backed that up with an $82.2m deal to buy Bianco Construction Supplies and the $64m purchase of Alpine Truss, a frame and truss specialist.

Metcash is getting into the frame and truss business with the acquisition of Alpine Truss.

To help fund the acquisition spree, the three deals will be funded via a fully underwritten institutional placement of $300m, existing cash, and available debt facilities. A non-underwritten share purchase plan of up to $25m will be made available for eligible shareholders.

Metcash has also provided a trading update, reporting total group sales were up 0.9 per cent for the nine months to the end of January, with sales in the third quarter 0.4 per cent lower driven by moderating inflation and a shift in the Christmas/New Year holiday period, with builders breaking earlier and returning later than in the prior corresponding period.

For its key food pillar, sales rose 5.1 per cent for the nine months, liquor sales were up 1.4 per cent and hardware sales up 2.6 per cent.

The buying spree comes as Metcash battles against Woolworths and Coles, and in hardware the Bunnings chain, and the entire sector comes under the political spotlight over supermarket pricing and market power.

The acquisitions will help ­diversify Metcash’s earnings away from its flagship supermarket wholesale operations – which before the deals generated about 39 per cent of annual earnings – and see Metcash venture into the fast-growing food distribution and services business through ­Superior Food as well as home construction through a deal to buy Bianco and Alpine Truss.

Once the acquisitions are bedded down and it meets its synergy targets, its supermarkets arm will generate 34 per cent of earnings, with about 26 per cent to come from hardware and construction, 14 per cent from its Total Tools retail chain, and 8 per cent from its Superior Food division.

“You should think about (the three acquisitions) as a platform of capabilities and expertise that have a series of strategies that we repeatedly execute,” Mr Jones said.

“Our own business will be more efficient, stronger, more resilient, with better growth prospects.”

Metcash said the acquisition of Superior Food was a “a logical extension” of its current business, would enhance its core food wholesale and distribution capabilities, and cemented Metcash’s position as the largest wholesaler and distributor of food to independent businesses in Australia with a significant acquisition in food service.

The purchase price comprises upfront consideration of $390m plus a deferred earn-out payment of up to $22.3m based on Superior Food’s EBITDA for the year to June 30. Its underlying earnings for 2024 are estimated at $39.9m.

Bianco Construction Supplies is a construction and industrial supplies business servicing the South Australia and Northern Territory trade market, for an enterprise value of $82.2m. Bianco generated sales of $144m and earnings of $13.9m for fiscal 2023.

Alpine Truss is one of the largest frame and truss operators in Australia, for an enterprise value of $64m. Alpine reported in 2023 sales of $46m and $10.6m.

Metcash shares last traded at $3.64.

Originally published as Metcash unveils three acquisitions spread across food and hardware