Nathan “Natie” Kirsh, the billionaire owner of a closely held company crucial to US restaurants, is selling his business that began with a single warehouse in Brooklyn, New York.
Sysco is acquiring Jetro Restaurant Depot for $29.1 billion (R500 billion), including debt, the companies said Monday. It will create one of the largest food-service groups in the country.
Jetro shareholders will receive $21.6 billion in cash and 91.5 million Sysco shares. The deal represents a multiple of more than 14 times Jetro’s operating income.
Sysco supplies food to restaurants, hospitals, and schools across the US and had a market value of about $39 billion as of Friday.
Jetro functions as a sort of Costco-like business for 725,000 smaller restaurant owners and food-service operators.
Shares of Sysco fell as much as 15%. The stock had gained 11% since the start of the year through Friday’s close.
Kirsh, 94, founded Jetro in 1976 and maintained tight control while expanding the business significantly. It operates 166 large-format warehouse stores across 35 states.
The company generated about $16 billion in revenue and $2.1 billion in earnings before interest, tax, depreciation, and amortization last year.
By purchasing Jetro, Sysco said it will gain access to the higher-margin and growing cash-and-carry channel, which is the primary source of supply for many smaller restaurants.
Sysco plans to fund the deal with $1 billion of cash on hand and $21 billion of new debt and hybrid debt. The company is also pausing its share buyback program to “prioritize rapid de-leveraging” after the purchase.
Jetro shareholders will own about 16% of Sysco’s stock upon completion of the transaction. The company will continue to operate as a standalone business segment within Sysco.
Its existing management team will stay in place at the head office in Whitestone, New York, under President Richard Kirschner. He will report to Hourican.
“The combined company will have increased purchasing efficiencies, enabling lower prices for customers,” Kevin Hourican, chair of the board and chief executive officer of Sysco, said in the statement.
“Even more importantly, we see a long runway of opening new Jetro Restaurant Depot warehouses, bringing the industry leader in affordability to hundreds of new communities and creating thousands of new jobs.”
‘Don’t Love the Deal’
“Sysco shareholders in the immediate term don’t love the deal given the elevated multiple being paid and the transaction’s scope,” Vital Knowledge Media’s Adam Crisafulli wrote in a note.
That said, while a deal this size creates “integration/execution risk and pushes the leverage ratio higher,” it also presents a new growth opportunity for Sysco.
Jetro has higher Ebitda multiples and free cash flow conversion than Sysco’s standalone business, Crisafulli added. Sysco said it remains on track to meet the high end of its full-year profit outlook.
Kirsh grew up in Potchefstroom, South Africa, a university town about 120 kilometres southwest of Johannesburg, where his family ran a malt business.
In his 20s, he moved into grain milling and later wholesale distribution. He eventually acquired a South African food distributor and built it into a cash-and-carry network supplying small retailers — a model that underpinned his fortune.
Unlike many South African billionaires, whose wealth is rooted in mining or finance, Kirsh built his fortune in staple goods and distribution.
Under apartheid, formal retail was concentrated in white urban areas, and white-owned companies were heavily restricted from operating in black townships, leaving a vast, underserved market.
Kirsh’s wholesale network supplied independent traders who sold into those areas, creating an indirect distribution system that operated within — and benefited from — the constraints of the time.
Kirsh moved to New York after his South African firm was acquired by an insurance company. In the US, he saw an opportunity to exploit a food business that favoured national grocery chains over smaller, independent stores.
Restaurant Depot was first known as Jetro Cash & Carry when it opened in 1976. Bodega owners could go to a physical warehouse, select their items, pay upfront, and carry them back to their stores.
At the time, the business model was dismissed as inferior to full-service national distributors like Sysco, where a salesperson came to an owner, assessed their needs, and coordinated delivery.
Jetro made the opposite pitch. Salesmen told bodega owners they could buy exactly how much they needed, freeing up space on their shelves. Without delivery costs or credit risks, Jetro sold goods 20% cheaper than competing suppliers.
By the early 1990s, the number of Jetro locations grew to 10 outlets across the US, generating more than $400 million in revenue.
After briefly selling a majority of the business only to buy it back, Kirsh acquired Restaurant Depot, allowing him to scale and push the cash-and-carry model into restaurants, pizzerias, caterers, and delis, too.
