Glenboden M & A Originations

Bel makes breakthrough into fresh cheese with Boursin acquisition

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Origination Status business unit and brand divestment agreement announced, November 2007;
Asset Boursin (France), legacy French fresh cheese brand with European presence;
Buyer Bel Group (France), no.1 European melted cheese producer;
Seller Unilever (UK /Holland), multinational FMCG group;
Financial Terms total cash consideration of €400 mln, represents P/S of 4,0 and est. incremental P /EBITDA of 16,0 (2007F);
Buyer Rationale platform for ‘re-entry’ into fresh cheese category;
Seller Rationale portfolio restructuring, exit from non -core business of cheese;
NBs Dairy Crest and Lactalis were also in the frame to acquire Boursin
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We predicted that Dairy Crest would win the auction to acquire Boursin, because its main rival, Lactalis, would not be prepared to pay the price tag, likely to be in the region of x4 Sales. Well, we were spot on about the valuation, and that Lactalis wouldn’t pay that much. However, we are surprised to see that Bel emerged as the victor, given its melted cheese prevalence. The high price paid puts pressure on the group to create a strong European fresh cheese business, on the basis of the Boursin platform; that might require add-on acquisitions of local brands in certain geographies.

Both rationale and momentum were on Dairy Crest’s side, to win the bid. It has a determined strategy to expand from the UK into continental Europe; this determination was underlined, late last year, by its acquisition of the no.1 spreads producer in France, St. Hubert, for a very high valuation. The company was happy with the initial results from that first deal, as 2007 went on, and wanted more. Boursin, which is also a spread, and 50% of whose revenues are also in France, seemed like an ideal add-on for Dairy Crest. Maybe it came a bit too early for the company? Or maybe they refused to bid above the rumoured initial price expectation of €350 mln?

Groupe Bel is a very ambitious company. Still ultimately a family –controlled business, it aims to become the no.1 branded cheese producer in Europe, and no.2 globally after Kraft. For the moment, however, its leadership in Europe is only in melted or portioned cheese. All of its five flagship brands are in portioned cheese; indeed only one of them, Leerdammer acquired in 2002, is not a melted cheese. What’s more, its other two most recent acquisitions, Merkts in the US and Syrokrem in Slovakia, both in 2002, are also melted cheese makers.

So, having paid so much, Bel is clearly treating Boursin as its platform, voire launch pad, beyond portions and into spreadable fresh cheese. It will surely be looking to massively grow the business, possibly by a factor of 10, from its current €100 mln in sales revenue. This is obviously quite a risky proposition. Generally, the positioning of melted and portioned cheese is very different to that of spreadable fresh cheese. A lot will depend on how successfully Boursin is integrated into Bel’s existing sales and supply chain systems (they are only acquiring the production and marketing parts of the business). Their key battleground will of course be France, where the main incumbent in this category is Bongrain, who will now have to work hard to ‘hold the line’ against a newly aggressive Bel.

Meanwhile the giant Lactalis, having predictably dismissed even the initial price tag for Boursin as ‘very high’, is busy making bolt-on acquisitions of presumably undervalued businesses in emerging markets. A few days before the Boursin deal, it announced the purchase of Molochnyi Dim in Ukraine, owner of the ‘Fanni’ brand. The contrast between the two deals says a lot about differences in strategic priorities, between Lactalis and Bel, at the current time.

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