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Metcash (MTS) $3.58

MTS this week confirmed the acquisition of three additional businesses for ~$578m that we think complement their existing operations and are consistent with their strategy in food and hardware. The purchases are being funded by a combination of debt ($278m) & equity ($300m) issued at an 8% discount to the pre-deal market price ($3.35).

The biggest is Super Food Service, where Metcash paid $390m upfront + some earnouts for a well-established, incredibly well-run food wholesaler that sells into restaurants, cafes, canteens, caterers, schools and universities, healthcare and aged care facilities and a variety of other food service operations. While they have paid a full price (9x EV/EBITDA), this is a faster-growing business than their existing food operations, where they supply the likes of IGA and Foodland.

In hardware, they’ve bought construction & industrial supply business Bianco for $82m & Alpine Truss for $64.0m, which manufactures and supplies roof trusses, wall frames and flooring systems to builders. The three deals are aligned with their strategy of powering independents under strong brands, and importantly, they fill geographic and product gaps in their current operations.

Synergies is a buzzword used in acquisitions, and these come on two sides. Cost synergies, which means the businesses bought can be run more efficiently within the MTS structure, and revenue synergies, which means the company can benefit from more sales given a wider group and more cross-sell opportunities. MTS think they’ll get $19m in synergies leading to mid-single digit earnings accretion – in other words, the acquisitions will be a positive on their earnings growth from the get-go.

  • We own MTS in the Income Portfolio and are now considering for the Active Growth Portfolio
MM is long & bullish on MTS
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Metcash (MTS)
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