Glenboden M & A Originations

Bakery products are hot for M&A with Aryzta as consolidator

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Origination Status announcement of merger of two public companies, June 2008;
Asset Aryzta AG, global leader in value –added baked goods and convenience food;
Buyer IAWS plc (Ireland), international lifestyle food company (majority share);
Seller Hiestand Holding AG (Switzerland), leading European frozen bread producer (minority share);
Buyer Rationale creation of global leader, further consolidation strategy;
Seller Rationale completion of previous agreements to merge into IAWS;
NBs acquisition candidates include Unibake, Greencore, Vendemoorle frozen products, Sofrapain.
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It’s no surprise in this high commodity cost environment that bakery products are seeing a lot of M&A activity. From Barilla’s attempt to sell part or even all of Kamps; to Premier Foods’ search for a buyer for its French bakery business Sofrapain; to Lantmannen’s acquisition of Euro-Bake in Florida; to Belgium’s Vandemoortele’s purchase of French market leader Pavani. This merger by IAWS and Hiestand, to create a European’s biggest premium baked goods business, gives a signal that the consolidation story in bakery products still has some way to go.

IAWS and Hielstand had combined sales revenue in 2007 of € 2,3 bln. Aryzta will therefore be significantly bigger than other major European baked products players. These include Lantmannen Unibake of Sweden, with € 600 mln in turnover; Irish –based Greencore, with about € 1,3 bln; and Belgium’s Vandemoorle, with € 600 mln sales in its frozen bakery business after its acquisition of Pavani in France. With the declared strategy for Aryzta to include further acquisitions, we can treat of all these competitors as potential acquisition targets.

After the merger, Aryzta is well set up to continue to consolidate the global industry. IAWS will be the larger partner, as it already owns 32% of Hiestand and is to acquire 83% of the new entity. That group has booked a CAGR of over 20% in the last five years in baked products, half of which coming from acquisitions that have included Delice de France and Cuisine de France, well as Otis Spunkmeyer as a major entry play into the US market in 2007. On top of that, the merger is almost cash free (except for € 30 mln for Lion Capital), so the new group will retain a relatively strong balance sheet. Listings in Ireland and Switzerland will also facilitate access to new capital if necessary.

Let’s take a look at potential significant acquisition candidates for Aryzta, post –merger integration.

Lantmannen Unibake is part of a Swedish farming co-operative giant. It claims to be the largest frozen bakery producer in Europe, as well as having a significant branded fresh bread business. In April Unibake acquired Florida -based Euro-Bake, as its first production facility in the US market where the group’s sales grew by 25% last year. With Unibake, Aryzta would acquire a market leading position in Scandinavia, where it is weak so far, would be able to consolidate its market position in Germany and Poland, and would gain a platform in Russia. Lantmannen is a co-operative, so not an obvious seller, but Unibake constitutes only 17% of the group’s total sales so could be considered as non –core.

Greencore of Ireland, which we’ve covered in previous Glenbodens, had a tough year in 2007 so might be vulnerable to acquisition. As well as having a leading presence in the high –value UK market, it’s strong in other north European markets and last month marked its entry into the US through the acquisition of HMBF in that country’s north –east. Greencore might be an interesting candidate if Aryzta’s strategy takes it more in the direction of chilled convenience food.

Vandemoorle is an impressive family –owned company, whose three business areas are edible oils, soya –based products and frozen bakery. The latter constituted 30% of total revenues in 2007, or € 300 mln, and is now set to double in size after the group’s acquisition of Pavani, France’s market leader in frozen bakery, last month.

The most low –hanging acquisition for Aryzta, however, would be that of Sofrapain in France, which Premier Foods inherited when it acquired RHM 18 months ago, and for which it has recently retained Stamford Partners to find a buyer. France is Europe’s biggest market for frozen bakery (think of all those boulangeries and patisseries), so it’s a safe acquisition as well.

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