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Compass agrees to pounds 120m takeover of US catering firm

Compass Group, the fast-growing international contract catering group, yesterday enhanced its position in the US through an agreed $195m (pounds 120m) takeover of Daka International.

Daka is a quoted company which provides contract meals and vending facilities for schools and colleges, factories and offices in 34 states in America.

The cash payment includes $110m worth of debt, which Compass will assume. Compass does not envisage any problem is gaining the necessary approval of two-thirds of Daka's shareholders, and envisages the deal will be completed by the end of next month.

Allen Maxwell the president and chief executive of Daka, will join the board of the Compass division in the US.

Daka has been in business for more than 20 years and has 710 catering contracts in 34 states. It also owns two retail restaurant businesses, Champps and Fuddruckers, which are being demerged to Daka's existing shareholders and are not included in the deal with Compass.

The businesses that Compass is buying had turnover of $280m and yielded operating profits of $17.5m last year. The acquisition is expected to be earnings neutral for Compass this year and earnings enhancing next year, Roger Matthews, the group managing director, said.

Compass is already established in the US market through Chartwells, its specialist supplier to UK schools and colleges, and through Professional Foodservice Management, which was acquired in August last year.

The latest acquisition will enhance Compass' existing buying power in the US and increase its clout in bidding for new contracts in a business where size, experience and proven ability to cater for special needs at a keen price are all important.

Almost three quarters of the Daka turnover is in the education sector. This means that once it is on board it will more than double Compass's turnover in the education market and confirm it as number four, possibly number three, in the US market.

The total US market for contract catering is worth an estimated $21bn, about 70 per cent of which comes from schools and colleges, said Mike Bailey, the chief executive officer of the US division of Compass.

Earlier this month Compass reported an 18 per cent growth in profits world-wide to pounds 56m on a turnover of pounds 1.17bn, including profits of pounds 17.8m in the US, and the group narrowly failed to enter the FTSE 100 index at the last quarterly review in March. Compass shares were up 0.5p to 675p yesterday, valuing the group at pounds 2.17bn.