Glenboden M & A Originations

Heinz acquisition points to French ethnicity as attractive for M&A

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Origination Status acquisition completion announced by buyer, August 2008;
Asset Benedicta (France), no.2 domestic producer of table -top sauces;
Buyer HJ Heinz Company (USA), multinational food business;
Seller AXA Private Equity (UK), private equity arm of AXA insurance group;
Buyer Rationale growth acceleration in France, strategic fit with three core categories, opportunism;
Seller Rationale acceptable valuation after three –year holding period;
NBs independent French food groups, with strong innovation culture and quality, are numerous.
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Recently Glenboden argued that Heinz should make an acquisition soon, that a sauces business was the most likely, and that there’d be an element of opportunism. We were right on all of those scores, although wrong to predict something with Asian ethnicity like Kikkoman. Although 80% of Benedicta’s sales are in France, we believe it has potential more broadly for Heinz, at least in continental Euope, because of its status as a French standard in its categories and its strong innovation function. This reminds us that French ethnicity, however unfashionable, has a lot of underlying quality and potential in grocery products. Future branded acquisition candidates for you, in that space, include Bonduelle, Fleury Michon and Saupiquet.

Established as ‘Benedictin’ in 1907, the company’s name was feminised to ‘Benedicta’ when it was the first to introduce mayonnaise in a tube in France in 1957. Since that time it has developed in the direction of both legacy French products, like béarnaise sauce and mustard, and more modern dips and barbecue sauce. With about € 100 mln turnover, it’s a strong no.2 with 25% share of the French cold sauces market overall, growing to a 40% share and no.1 position in the dips segment.

Like many companies in its class in France, Benedicta has a strong, marketing -driven innovation culture, with a great respect for food science. To underline that, the company points out that half of its current portfolio didn’t exist 5 years ago. That feature, plus the premium positioning of French food internationally, gives a French food brand like Benedicta a lot of potential for international expansion, even if Mediterranean or exotic ethnicities are currently more fashionable.

The problem is, of course, that so many of the French food brands are family owned or, if publicly traded, controlled by the founding family. In this respect Benedicta is quite unusual; owned by Unilever, who sold it to Barclays Private Equity in 2000, who on –sold it to AXA Private Equity in 2005. Nevertheless, one should always be perusing, persevering and patient in M&A activity …

In terms of concrete candidates, in this space, our favourite has to be Bonduelle. It has an ingeniously simple focus on vegetables, in all their forms (canned, frozen or chilled), as well as a strong innovation function (breaking new ground in areas like bagged salad mixes). This gives it a tremendous future, given consumer trends to healthier eating, especially in new geographies. Unrivalled already in Europe, its turnover grew by 20% in 2007 thanks largely to a step change in its north American business (acquisition of Aliments Carriere in Canada). It is also making inroads in Russia.

Another tip, for similar reasons of innovation in a nutritional category, is the processed fish producer Saupiquet. Market leader in France in its main categories, since 2000 it’s been part of the Italian conglomerate, the Bolton Group, which is also market leader in processed fish in Italy. Processed fish has huge growth potential, and innovation possibilities as it moves beyond its tinned prevalence. A more sophisticated approach to issues of fish sustainability and traceability should help in future.

Our third tip is Fleury Michon. Like Bonduelle, it’s a listed company with a major family ownership component. Traditionally a charcuterie producer, its chilled ready meals division now constitutes nearly half of turnover. In this latter category FM booked a 16% growth rate in 2007, in its branded segment, which can be compared with only 2,5% growth in packaged food in general in France. The company still derives 90% of its revenues in France, but it has a clear strategy for expansion in neighbouring countries. Chilled ready meals have huge potential throughout Europe, and a heavy innovator like Fleury Michon is well placed to capitalize on this especially in the premium segment.

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