US Foodservice Secures 8.5x Leverage

Target: U.S. Foodservice’s distribution business

Price: $7.1 billion

Multiple: 13.4x (estimated)

Sponsors: CD&R and KKR

Seller: Royal Ahold

Royal Ahold NV recently agreed to sell its U.S. Foodservice distribution unit for $7.1 billion to Clayton, Dubilier & Rice Kohlberg and Kohlberg Kravis Roberts & Co.

The total transaction price includes $2.6 billion in equity and $4.5 billion in funded debt, according to sources close to the process. Its debt package reflects a staggering 8.5x leverage multiple, and includes a $1 billion unfunded revolver at closing. Neither the bank notes nor the high-yield notes have covenants.

CD&R and KKR are equal partners on the deal, which means that each must come up with a $1.3 billion equity check. That would be virtually impossible for CD&R to do alone, since it would represent nearly a quarter of its current fund. So, instead, the firm intends to invest $600 million from its general fund, around $150 million from a dedicated co-investment fund, and then syndicate the remaining $550 million to limited partners. If you add the co-invest fund to additional co-investments, limited partners will directly contribute more to this deal than will CD&R’s general fund. It is unclear how KKR’s equity commitment will be structured, including if it will be syndicated out to its listed co-investment vehicle.

J.P. Morgan Chase managed the sale process, which included a rival bid from Bain Capital, The Blackstone Group and Wellspring Capital Management. Wellspring seems a bit out of place in that mega-mix, but gained access thanks to existing ownership of a food distribution platform called Vistar. Strategic competitor Sysco is also rumored to have taken a shot.

The sale was part of Royal Ahold’s continuing move away from the North American market. The next step is expected to be a sale of supermarket chain Stop & Shop later this year.—D.P.