Woolworths pays $302m for 65pc of PFD Food Services

Woolworths will extend its reach into food distribution by buying an initial 65pc stake in the family-owned PFD Food Services.

PFD Food Services delivers to Eremea home care services in Sydney. Picture: Dallas Kilponen

Woolworths will deepen its reach into people’s pantries, offices and social venues with its $302m purchase of an initial 65 per cent stake in the privately-owned PFD Food Services.

In a deal unveiled on Wednesday, Woolworths will also acquire 100 per cent of PFD’s freehold properties, which primarily comprise 26 distribution centres.

Owned by rich listers the Smith family, PFD is one of the nation’s largest food service providers, distributing fresh seafood, meat, frozen products, dry goods, paper products and cleaning solutions.

In a highly fragmented market PFD Food Services is the No.2 player, with around 11 per cent. It is a new space for Woolworths, although the supermarket group worked with the company to deliver food during the peak of the COVID-19 crisis in March, in particular serving other food businesses.

Woolworths chief executive Brad Banducci said the supermarket group was 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,” he said. “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.”

Mr Branducci said the deal was “logical” for Woolworths as it catered for food and everyday needs.

“It will build on our existing partnership with PFD, the number two player in the large and fragmented out-of-home food service and non-retail business-to- business markets.”

There would be synergies for both companies.

“We will help to support PFD’s growth through access to our logistics, digital and data analytics and operational capabilities,” Mr Banducci said.

“For Woolworths group, it will enhance store range localisation and provide fleet synergies through better route and capacity optimisation across our combined network.”

Woolworths said PFD will operate independently under its CEO Kerry Smith. A separate board and governance structure will be implemented, with Rick Smith, the founder of PFD, continuing to be involved.

Ms 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 stand-alone business, run by the existing team.”

Woolworths said it will initially invest $302m in PFD to acquire a 65 per cent equity interest. The transaction implies a multiple of 11 times pre-AASB 16 EBITDA of $57m, assuming net debt of $157m.

Woolworths will pay $249m for PFD‘s freehold distribution centres, which will be leased back to PFD.

Like many other businesses, PFD’s 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, the supermarket group said..

The transaction is subject to an earn-out at the end of 2022 and 2023 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 per cent shareholding, exercisable from the third anniversary of completion.

The transaction is subject to ACCC approval. 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.