Once a company is in operation and is successful it faces two choices – grow or try to stay successful without growing too much. If it decides to grow, it will tend to do it vertically first to try to be control of the input to its operations. If it continues to grow, then to diversify itself it will move horizontally or ideally some sort of outside company that has relatively easy synergies to itself. And the process continues.

In an article by Neil J Kanatt and Abigail Summerville of Reuters, Sysco is buying catering supplier Jetro Restaurant Depot for about $29 billion. The deal will be financed with $21 billion in new and hybrid debt and $1 billion in cash and equity. Jetro shareholders will own 91.5 million Sysco shares or 16% of the company.

Sysco is the US largest food distributor, and if you look around you will often see their trucks bringing food to convenience stores, restaurants, hotels and hospitals cafeterias around the country. According to Brad Haller, a senior partner in West Munroe Partners’ merger and acquisition practice, the deal reflects Sysco recognizing its traditional distribution model is under real structural pressure and choosing to act before that pressure becomes existential.

Jetro Restaurant Depot operates a wholesale cash-and-carry model where consumers pay upfront for food, beverages, and takeout containers. The margins are higher than what Sysco operates at which would appeal to Sysco. Jetro has 166 warehouses across 35 states.

Sysco CEO Kevin Hourican, noted cash-and-carry business is an extremely recession resilient business. Every time there is a recession, cash-and-carry including Jetro picks up market share.

Large deals need to go before regulators such as the Federal Trade Commission, but Mr. Hourican notes operate in distinct channels of food with limited customer overlap.

Jetro is selling because the founder Nathan Kirsh is in his 90’s and his children are not interested in running the business,

Sysco expects the acquisition to boost earnings per share by mid-to-high single digit percentage in the first year after closing, which it expects by the 3rd quarter of 2027.

Linking to dividend paying stocks, successful companies are always doing some mergers and acquisitions and ideally the M&A lead to higher earnings and continuing stable profits. For shareholders, what is ideal at the time of purchase, needs to be executed and how well it is makes investing depended on quarterly results. How are they doing? is the plan working? the deal was done for a reason, what was the reason?

There are more questions than answers, till the next time – to raising questions.