Metcash Limited (ASX: MTS) shares have returned from their suspension on Tuesday.
In early trade, the wholesale distributor's shares are down 5% to $3.46.
Why are Metcash shares falling?
The company's shares are falling this morning in response to the completion of its $300 million fully underwritten institutional placement.
These funds were raised at $3.35 per new Metcash share, which represents an 8% discount to its last close price.
These funds, as well as its existing cash and debt facilities, will be used to acquire three strategically aligned businesses that management believes deliver further diversification and resilience, and an even stronger growth trajectory.
This includes Superior Food, which is being acquired for an enterprise value of up to $412.3 million. It is a leading Australian foodservice distribution business.
Management believes Superior Food is a logical extension of Metcash's Food strategy and will enhance its core Food wholesale and distribution capabilities.
Also joining the Metcash portfolio will be Bianco Construction Supplies for an enterprise value of $82.2 million and Alpine Truss for $64 million.
Bianco is a construction and industrial supplies business, whereas Alpine Truss is one of the largest Frame & Truss operators in Australia.
Metcash will now push ahead with a $25 million non-underwritten share purchase plan. This is being undertaken at the lower of the institutional placement price and the volume weighted average price of Metcash shares traded on the five trading days up to and including the closing date.
What's the reaction to the acquisitions?
Goldman Sachs has been running the rule over the acquisitions and has mixed thoughts. It said:
Focusing on Superior Food, we note the strategic rationale of entering a faster structural growth category in Food Service with A$21bn TAM, ~5% growth p.a. in FY23-28E vs Grocery (based on estimates from Superior Food).
However, the broker highlights that this sector has been boosted from a post-COVID rebound and there are signs of softening. It adds:
In November 2023, ABS sales for Cafes, restaurants and takeaway food services category was +3.8% YoY, with a softening trend vs 5.4% in Oct 23. With cost of living still a focus and our understanding of people returning to in-home cooking (vs eating out), we expect potential further softening in FY24. Additionally, over the past 10 years, the seasonality of Food Service category sales exhibit higher volatility mom vs grocery sales at 6.5% vs 4.4%. Currently, SFG is the 3rd player, with ~6% market share though stable margins (based on estimates from Superior Food).
In light of this, Goldman has held firm with its neutral rating and $3.60 price target on Metcash shares.
