Glenboden M & A Originations

Wessanen's latest dairy alternatives buy points to its vulnerability as an M&A target

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Origination Status buyer announcement of acquisition, July 2008;
Asset ‘So Good’ brand rights and business in Europe;
Buyer Royal Wessanen NV (Holland), multinational food group;
Seller So Good International Ltd (UK), Australasian Conference Association Ltd (Australia);
Buyer Rationale add-on to strategic dairy alternatives portfolio;
Seller Rationale sale of non –core activity in non –core market;
NBs So Good was established in Australia by an Adventists religious group (ACA).
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We draw two important conclusions from this deal. First, dairy alternatives is not as serious a threat to traditional dairy as it looks in theory. Second, Wessannen’s bold strategy of transforming itself from a private label supplier, to a new-frontier branded producer, is at best delayed and possibly stagnating. This may make it a target for a takeover, especially for its US and European distribution businesses

Dairy alternatives sound like a sure winner. Set beside ‘legacy’ dairy, it has no cholesterol, no lactose intolerance and less allergy risk, and has a better antioxidant story. There’s only one problem : soy –based beverages don’t display the same organoleptic properties that milk –based ones do; in other words, they taste awful. The fact that So Good, in spite of being no.2 in the UK market for dairy alternatives, only has annual revenues of 8 mln GBP, serves to confirm that assertion. Also, it appears to have been set up a religious organization in Australia, from what we can determine; if that’s the case, then it maybe wasn’t developed by food executives or entrepreneurs in the first place.

In 2005, Wessanen announced it would divest its mature private label businesses and instead build a portfolio of branded health and premium taste products, with the underlying theme being ‘authenticity’, whether in terms of purity of ingredients or of ethnicity. The plan was for branded products to constitute over 50% of turnover by 2007, (with the rest coming from Wessanen’s distribution arm).

The group then proceeded to sell its three main private label businesses, in breakfast cereals, industrial chocolate and frozen snacks, in 2006 -7. Together these constituted about 15% of its total revenues and the biggest one, Dailycer, was one of the biggest private label ready-to-eat cereals producers in Europe and market leader in the UK and France.

The problem is that the branded business has not been able to make up the shortfall, and constituted only 40% of Wessanen’s revenues in 2007. The groups overall sales have, in fact, been in slight decline in 2007 and H1 2008. We think the problem lies in two areas : (i) an inability to transform niche healthfood and ethnic store brands into mainstream ones, and (ii) too few acquisitions – before the So Good purchase, the only other brand acquired by the group was Righi in 2005, an Italian producer of chilled pastry snacks, whose € 10 mln in sales revenue was small even by So Good’s standards.

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