Glenboden M & A Originations

Russia's Nutritek emerging as international baby food player

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Origination Status deal origination, June 2008;
Asset OJSC Nutritek (Russia), no.1 domestic baby food producer;
Buyer Nestle, Danone (Nutricia), Heinz ?
Seller Marshall Capital Partners and minority public shareholders of Nutritek;
Financial Terms est. enterprise value of $ 1 bln, represents P/S of 4,75 and est. P /EBITDA of 19,0 (2007A);
Buyer Rationale market leadership in fast –growing and high margin Russian baby food market;
Seller Rationale strategic partner for expansion in China and south -east Asia;
NBs Nutritek divested its dairy business in November 2007
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Nutritek is appearing out of the shadows as the next big infant feeding prize in the world, after its acquisition this month of New Zealand Dairies, a supplier of milk –based ingredients for Nutritek’s drive into south –east Asia. A key question is whether its 53% owner, Marshall, behaves like a western –style private equity firm, and seeks an exit through sale to a strategic investor, or whether it’s one of those vehicles for oligarchs who want to take over the baby food world themselves.

Nutritek claims to be the only baby food supplier in Russia that’s present in all categories, including breast milk substitutes of which it claims to be the only independent producer in Russia. Through its overseas arm, Nutritek International, the group is now launching businesses in China and south –east Asia, based out of a Singapore head office, with the ambitious goal of reaching $ 200 mln in sales in that region in the next two years. The purchase of New Zealand Dairies is integral to that strategy, as it is the site for a state-of-the-art vitaminised dry milk and base formulas plant.

Nutritek very wisely sold off its dairy business last year, to Russagroprom. That business operated in a very fragmented market, was focused on commodity milk products, and was a drag on profitability. Now a pure –play infant feeding business, spanning traditional baby foods (cereals, purees etc) to clinical nutrition products, it is both better positioned for sustainable growth and, at the same time, much more attractive to the big global players. Arguably Heinz is best placed as acquirer, amongst the three tipped by Glenboden, because Nestle and Danone are still digesting their respective acquisitions last year of Gerber and Numico. On the other hand Heinz’s existing market position in Russia is weaker than that of the other two multinationals, and it might not have the stomach to fight them there.

Nutritek is one of those Russian companies that’s been able to combine consistently high growth rates with equally high profitability. Its baby food sales revenue grew by 29% in 2007, to reach $ 220 mln, and its CAGR since 2001 is above 20%. At the same time, the EBITDA margin is in excess of 25%. The sales growth was half thanks to volume increases, and half down to price hikes, so clearly competitive pressures are still not too strong in Nutritek’s markets.

Nutritek is a public company, but the majority of shares are owed by a Russian investment house called Marshall Capital Partners. MCP describes itself as a private equity firm, and several of its executives are ex- investment bankers notably from Renaissance Capital. On the other hand, the soul of the group appears to be a man who helped to establish Nutritek in 1990, and who spent some years as a deputy minister of agriculture. Also, their investment portfolio beyond Nutritek seems quite limited.

So, whether or not Nutritek will be for sale now is unclear. In theory this is the best time for MCP to maximize its investment returns, while the company is still growing fast in a market with limited competition, and while corporate balance sheets are still strong and memories of hefty comparative transactions still fresh.

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THIS LEAD'S VALUATION
Size (€ mln) 700
Sector baby food
Asset Quality Russia leader branded
Seller private equity
Buyer large plc
P/S 4,75
P/Ebitda 19,0
Type value estimate
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