Performance Food’s $2.5bn Acquisition of Core-Mark

By Baliny Ganeshakumaran, Deimante Chailenko, Matilda Oculy, Zahra Malik (University of Manchester), Anthony Borgese, Susan Xiao, Claire Zhong, Jessica Pei, Zen Suzuki and Mustafa Bayramli (Wharton)

 

Overview of the deal


Acquirer: Performance Food Group

Target: Core-Mark

Total Transaction Size: $2.5B

Closed date: H1 2022

Acquirer advisors: BMO Capital Markets, JP Morgan

Target advisor: Barclays


M&A activity is a key driver in a highly competitive industry based on reliable supply chains and broad product offerings. Performance Food Group (PFG) seems to broaden its geographical reach while expanding into the convenience store channel; the target is the leader in fresh deliveries to convenience stores. PFG is planning to finance the transaction through cash through an asset-based revolving credit facility as well as the issuance of new senior unsecured notes. As well as the immediate addition of ~$17B in net sales for the pro-forma company, it is expected to result in ~$40M worth of cost synergies in the third year after closing.


"Core-Mark is an outstanding company that we believe will significantly strengthen our business diversification and expansion into the convenience store channel…This transaction will also combine Core-Mark’s footprint and operational excellence with PFG’s existing capabilities in both convenience and foodservice." - George Holm, Chairman, President & CEO (PFG)

Company Details: (Acquirer - Performance Food Group Company)


Performance Food Group connects with customers by delivering food products to consumers all across the United States. PFG works with a variety of different groups, including national chain restaurants, independent restaurants, concessions, and more. It has 3 divisions that each focus on a different market segment: Performance Foodservice, Vistar, and PFG Customized


Founded in 1885, headquartered in Goochland County, Virginia (USA)

CEO: George Holm

Number of employees: 25,000

Market Cap: $6.78B (as of 02/06/2021)

EV: $9.59B

LTM Revenue: $26.87B

LTM EBITDA: $473.2M

LTM EV/Revenue: 0.36x

LTM EV/EBITDA: 20.27x


Company Details: (Target - Core-Mark)


Core-Mark Holding Company supplies fresh and frozen merchandise to convenience stores in the United States. They provide services to convenience retailers, including traditional convenience stores and grocery stores. It provides business assistance such as category management and management of promotions. They are one of the most prominent marketers in the convenience retail industry for supply solutions.


Founded in 1888, headquartered in Westlake, Texas (USA)

CEO: Scott E. McPherson

Number of employees: 8,413 (2017)

Market Cap: $2.09B (as of 21/05/2021)

EV: $1.98B (2020)

LTM Revenue: $13B

LTM EBITDA: $167.2M

LTM EV/Revenue: 0.19x

LTM EV/EBITDA: 15.83x


Projections and Assumptions

Short-term consequences


Grocery distributor Performance Food Group Co’s planned acquisition of Core-Mark, which is expected to close in the first half of calendar 2022, has had noticeable business repercussions for the target and acquirer market equity in the short term. Despite being halted for the news, Core-Mark shares jumped 6.9% to $45.08 in pre-market trading on Wed