Equity Analysis /
Mexico

FEMSA: Flash: Continues to expand the presence of the distribution business in the US

  • Femsa has agreed to acquire Penn Jersey for an undisclosed sum

  • Penn Jersey´s revenues amount to US$200 million (LTM) which is equivalent to 0.8% of Femsa's consolidated revenues

  • We view the announcement as positive, although this transaction should not be that relevant to the company's valuation

Juan Barbier
Juan Barbier

Equity Research Analyst

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Marissa Garza Ostos
Marissa Garza Ostos

Head of Equity Research

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Banorte
8 September 2021
Published byBanorte

Fomento Económico Mexicano (FEMSA) announced that it has agreed to acquire Penn Jersey Paper Co. (PJP), an independent specialty distribution company located in Philadelphia, through its subsidiary Envoy Solutions, which operates in the same industry. This transaction would add to the recently announced purchase of Daycon Products and with which it would expand its presence in the US, now also operating in Pennsylvania and New York. According to the press release, revenues of the target company amount to US$200 million in the LTM, which is equivalent to 0.8% of Femsa's consolidated revenues. Certainly, the transaction is subject to the corresponding authorizations, while the company expects it to be finalized during the third quarter of this year.

Positive implication: We view as positive the announced agreement to acquire Penn Jersey, although this transaction should not be so relevant to the company's valuation given the size of the target entity. At the same time, the company did not disclose the acquisition multiple. For context, at 2Q21 end, Femsa's distribution and logistics business contributed close to 8.4% of consolidated revenues; therefore, with the acquisition of Daycon Products and PJP, the share could increase to 9.5%. These transactions are part of Femsa's strategy to increase its geographic footprint in the US specialty distribution business, which began in 2020 with the acquisitions of Southeastern Paper Group (based in Spartanburg, South Carolina), SWPlus (Wichita, Kansas), Waxie and North American (in San Diego, California, Chicago and Illinois). Femsa intends to consolidate its position in a fragmented business with a gradual recovery trend, while the distribution and logistics business will gain scale and purchasing power with suppliers.