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This Day in Buyout History

This day in buyout history: Meals, monopolies and a $7.1B club deal

Six years after KKR and Clayton, Dubilier & Rice acquired US Foods, the firms thought they’d found the perfect exit path. But the government had different ideas.

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On July 3, 2007, private equity firms KKR and Clayton, Dubilier and Rice finalized a $7.1 billion acquisition of US Foods, a foodservice powerhouse that traces its roots back to well before the Civil War.

It was a mega-deal inked during the final months before the global economy entered a crisis. So as you might expect, it led to a relationship that involved its fair share of drama—including plans for a headline-grabbing exit that were thwarted by regulatory fears. In the end, KKR and CD&R waited nearly a decade to realize their investments, eventually doing so in one of the largest PE-backed IPOs of 2016.

KKR and CD&R first announced their pending acquisition of US Foods (known at the time as US Foodservice) in May 2007, agreeing to hand over $7.1 billion to purchase the company from Dutch retail giant Royal Ahold, almost twice the price Ahold had paid for the business seven years prior. The two firms were equal partners in the deal.

With annual revenue of more than $19 billion at the time , US Foods was one of the most powerful names in foodservice distribution, which involves supplying ingredients and meals to caterers, cafeterias, restaurants and other entities that sell food directly to hungry customers. The company is an amalgamation of several older provisioners, including Reid, Murdoch & Company, which was founded way back in 1853.

It was mostly a quiet rest of the decade for US Foods. In 2011, though, the business embarked on an add-on spree, acquiring fellow food distributors with a more local focus such as Ritter Food Service, Vesuvio Foods and Midway Produce. The changes continued later in 2011, when US Foodservice officially changed its name to US Foods.

With some inorganic growth complete, KKR and CD&R began searching for an exit. They thought they found it two years later. But government watchdogs had different ideas.

The firms agreed to sell US Foods in December 2013 to Sysco in an eyebrow-raising $8.2 billion deal, with the fellow foodservice giant set to pay $3.5 billion for US Foods’ equity and assume a further $4.7 billion of its rival’s debt. The deal called for US Foods’ prior backers to assume a 13% stake in Sysco, with KKR and CD&R both assuming spots on the newly combined company’s board.

It was a move that would have merged the two largest foodservice distributors in the US. Which, as you might imagine, drew the attention of the US Federal Trade Commission. The FTC filed an objection to the merger in February 2015, more than a year after it was first announced, seeking an injunction against the move on the grounds it would reduce competition and drive up food prices for hospitals, schools and other customers across the country. That June, the companies officially abandoned the planned deal.

And so KKR and CD&R were left looking for another exit route. This time, they opted for a move to the public market. US Foods filed for an IPO in February 2016, and it completed the listing that May, pricing an offering of 44.4 million shares at $23 each to raise $1.02 billion, larger than any other traditional PE-backed public offering in the US that year, according to the PitchBook Platform.

In its early days as a public company, US Foods had a market cap of a little over $5 billion—a far cry from the $7.1 billion price KKR and CD&R had paid nearly 10 years before. In the ensuing three years, however, the company’s valuation has ticked steadily up. As of June 28, the final trading day of 1H, stock in US Foods was trading at $35.76, for a market cap of $7.81 billion.

Featured image via itjo/iStock/Getty Images Plus

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    Written by Kevin Dowd

    Kevin Dowd wrote The Weekend Pitch newsletter for PitchBook, covering startups, buyouts and the rest of the private market.

    A native of the Pacific Northwest, he’s an alumnus of the University of Washington with a degree in creative writing and journalism. He enjoys books and basketball and, most especially, books about basketball. He feels uncomfortable writing about himself in the third person.

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