Glenboden M & A Originations

Swiss dairy champion Emmi emerging as acquisition candidate

Priority Rating priority rating 4
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Origination Status deal origination in June 2008
Asset Emmi Group (Switzerland), no.1 domestic dairy processor
Buyer candidates include Lactalis or Groupe Bel (both France)
Financial Terms predicted enterprise value of 2,5 bln CHF, represents P/S of 1,0 and P /EBITDA of 18,0 (2007A)
Buyer Rationale position and platform as global Swiss cheese leader, value-added concepts
Seller Rationale need for bigger partner to fulfill international ambitions, margin pressures
NBs Emmi positions itself internationally as the Swiss cheese specialist of choice
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In recent months we’ve commented on the worldwide spate of dairy sector M&A deals - from Friesland’s merger with Campina, through the bolt-on acquisitions by Lactalis and Bel in central Europe, to the strong interest in the Dairy Farmers tender in Australia. The global dairy industry is notoriously fragmented, so there are many acquisition candidates at all levels, but Emmi of Switzerland is emerging as a very attractive premium producer with a strong authenticity story.

Since its commercialization into Emmi AG in 1993, the group has grown through both acquisitions and value –added dairy innovations. Since 2001, Emmi’s CAGR has been 11% overall, growing to 18% for its international business alone, which now constitutes over 20% of sales. It’s this side of the business that’s most attractive to potential acquirors. Focused initially on expanding into Germany, Italy and the US, the group is forging alliances elsewhere and its ambitions are truly global.

In the late 1990s and early 2000s, Emmi played the major part in consolidating the Swiss dairy industry. After its listing on the Swiss Stock Exchange in 2004, it began its international expansion in earnest. It took a minority stake in Spain’s Kaiku in 2005; forged a strategic co-operation with Roth Cheese for the US market, and acquired the Italian yoghurt producer Trentinalatte, in 2006; and in 2007 it took a minority stake in Italy’s premium cheese maker Ambrosi. More acquisitions and strategic alliances are in the pipeline in various geographies, including Russia and Asia.

What differentiates Emmi is primarily its positioning as the leading international producer of authentic Swiss cheeses made with state of the art techniques. There’s huge potential for this category globally, with varieties like Kaltbach and Appenzeller continuing to attract a premium. Alongside this are value –added concepts in fresh products, notably Emmi’s flagship Caffe Latte range.

However, with total revenues of about € 1,5 bln, Emmi may not have the scale to fulfill its global potential by itself. Its core Swiss market is becoming more competitive, which reduces the ability to milk that business for funding international expansion. Indeed, the group is facing profitability challenges, with EBIT down by 16% to only 2,5% of sales in 2007.

But who is the most likely buyer ? Emmi is a full –range dairy producer in its domestic market, with its international sales focused on Swiss cheese and fresh products but not on traditional yoghurt or other snacking products. So it’s unlikely to appeal to Danone. The most likely buyer in our view is Lactalis, who now has a lot of acquisition momentum as well as the scale to commercialise Emmi’s concepts internationally. As the acquisition of Italy’s Galbani in 2006 demonstrates, Lactalis appreciates the value of ethnically authentic ‘ambassador’ brands.

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