Glenboden M & A Originations

Greencore raises the stakes vis-a-vis Bakkavor after US acquisition

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Origination Status buyer announcement of company acquisition in April 2008
Asset Home Made Brand Foods Inc. (USA), leading chilled foods producer in north –east USA
Buyer Greencore (Ireland), leading European convenience foods supplier
Seller founders of HMBF
Buyer Rationale entry into growing chilled convenience food market in US
Seller Rationale acceptable valuation
NBs Bakkavor, Greencore’s rumoured buyer, made two significant acquisitions two days earlier
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Is this a case of courtship or muscle flexing ? Convenience food is a business where, as both Bakkavor and Greencore demonstrate, it’s relatively easy to grow but very hard to achieve the margins expected of public companies. So, there’s a clear case for consolidation of these two companies, given e.g. the manufacturing synergies that could be extracted in the UK. But, for the moment, both groups continue to grow their footprints with new acquisitions.

HMBF is like a catering business, serving both retail and foodservice clients. This is clearly a platform –type acquisition for Greencore. Not only does HMBF have the existing capacity to increase sales from $ 40 mln (2008F) to $ 100 mln, it also has customer relationships and a product offering, spanning side dishes, marinated chicken and desserts, that is clearly geared towards local tastes in north east America.

It may be no co-incidence that, only two days earlier, Greencore’s rival Bakkavor annpounced the acquisition of Italpizza, specialized in the production of authentic Italian wood-fired fresh and frozen pizzas, as well as that of La Rose Noire, Hong Kong’s leading producer of premium bakery and pastry products. It looks like Greencore is telling its shareholders that it’s not just waiting to be acquired, but is adding value and expanding by itself.

However, this may be only a way of maximizing shareholder value, and not a genuine bid to stay independent. Last month Bakkavor raised its stake in Greencore, to 11%, declaring that to be a strategic shareholding. It also looks like there’s some convergence of acquisition strategy, between the two groups. Earlier this year, Bakkavor announced its entry into the US convenience foods through the acquisition of Two Chefs on a Roll, based in California. Now, Greencore is following Bakkavor into that market, but has started with that another high value region of the US, namely the north east.

We expect that the race still has some way to go, but that within a year Greencore may succumb to Bakkavor. Either the valuation will come good, or there’ll be a setback like another product recall, to trigger the deal at last.

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THIS LEAD'S VALUATION
Size (€ mln) 35
Sector chilled food
Asset Quality US regional unbranded
Seller individuals
Buyer mid-cap plc
P/S 1,35
P/Ebitda n/a
Type total consideration
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