If you’re a pizzeria owner, with one store or five, you need access to suppliers, preferably someone with local market knowledge. And it’s not just restaurants that do either. The foodservice industry is vast and includes hospitals, schools and entertainment venues. One PE firm sees a massive investment opportunity in this sector.
Earlier in May, San Francisco Equity Partners, a lower middle-market consumer-focused private equity firm, invested in in Sales Concepts and Donovan Food Brokerage to form Xceed Foodservice Group, a foodservice food brokerage platform.
SFEP is aiming to build Xceed into a national organization largely through acquisitions. The firm will rely on its internal deal sourcing team as well as industry knowledge from Sales’ and Donovan’s management teams, says SFEP Managing Partner Scott Potter. SFEP invests up to $40 million in equity in businesses that have up to $100 million in revenue and $15 million in Ebitda. The firm is investing out of its second fund. Xceed is SFEP’s second platform out of its second fund and is aiming to create up to six platforms in the fund.
Potter says its the need for local knowledge that will drive M&A in the food distribution space. The larger players, like Sysco, will likely have contracts with large restaurant chains, but may lack local sales teams to reach smaller regional operators, making the sector fragmented. Donovan’s focuses on Chicago and the Midwest, while Sales focuses on Memphis and the Southeast.
Potter used the Chicago pizza market as a case in point. “If you think about that network of a smaller foodservice operator in Chicago, the distributions handled by someone like a Sysco (NYSE: SYY), and if you think about the pizzerias in Chicago, mozzarella is a key ingredient,” he says. “A Sysco is going to have multiple options. If you’re a branded dairy manufacturer and want to ensure your product is being sold in those pizzerias and if you talk about differentiation and quality, and your someone who cares about the quality of the mozzarella, you need a sales person that’s really pushing your brand and product and that’s what these independent brokers provide.
“I think you will see several acquisitions from us this year,” he adds. “In foodservice in particular, it is highly fragmented. I think the size and fragmentation is what’s driving it.”
Reach Potter at 415-738-1200
