Sysco Gets Ready for Edward Don & Company Acquisition
Key Takeaways:
- Wholesale restaurant food distributor Sysco announced Wednesday that it would be acquiring Edward Don & Company, a leading food service equipment and supplies distributor.
- After the acquisition, Sysco will own two of the top 15 US food supply distributors.
- Despite the announcement, Sysco stock (NYSE: SYY) underperformed on Wednesday, decreasing by 0.30%.
Sysco, the top wholesale food distributor in the US, announced on Wednesday that it will be acquiring Edward Don & Company, the third largest food service equipment and supplies dealer. The acquisition will bolster Sysco’s position in the food service supply space and expand its offerings.
Currently, Sysco owns Supplies on the Fly, which is the 11th largest food service supply distributor in the US. Upon completion of the acquisition, Sysco will own two of the top 15 companies in the space.
Edward Don’s sales reached an estimated $1.3 billion in 2022, a significant (~30%) increase over its estimated 2021 numbers, which were estimated at $1 billion, indicating Sysco is acquiring a company in good health.
Edward Don will continue to operate as a standalone company and current president and CEO Steve Don will remain in charge.
Investor Outlook
Sysco (NYSE: SYY) has been in a precipitous downtrend since April 2022, when it reached an all-time high of $91.53. Since then, it has fallen significantly, hitting a low of $62.24 last Friday, October 6 — a 32% drop.
The decline has been fueled largely by a reduction in consumer spending, an increase in operating costs and expenses, exposure to currency fluctuations due to the company’s involvement in international markets, and fears about the impact of weight loss drug Ozempic.
Overall, the food industry is taking a beating, with stocks down across the board. The increase in the cost of living has led many Americans to tighten their belts, and eating out has seemed to be one of the first things to go. A resurgence of concern about COVID due to the recent surge as well as increasing news coverage of Long COVID may also play a role.
As a wholesale distributor, Sysco depends largely on the health of the restaurant industry, and a decrease in restaurant spending is bad news for the company and its investors.
Although investors might hope that this new acquisition could revitalize the stock, the outlook appears grim. Sysco underperformed Wednesday immediately following the announcement, closing at $64.08, down 0.30%.
Historically, news of similar purchases haven’t proved particularly lucrative for Sysco investors. In July 2016, when Sysco purchased Supplies on the Fly, the stock experienced very modest short-term gains before dropping further in the opposite direction, erasing the gains and then some. A few months later in November, Sysco did resume an uptrend, but this was a result of a dividend payment increase, not the acquisition.
The bottom line
Between Sysco’s current downtrend, its recent underperformance, the difficulties the food industry is experiencing, and Sysco’s historical performance following similar acquisitions, investors should be cautious when considering investing in Sysco.
