Glenboden M & A Originations

Sale of minority stake in Lebedyansky baby food suggests strategic acquirer circling

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Origination Status company announcement, April 2008
Asset baby food business of Lebedyansky JSC (Russia), domestic market leader in baby fruit and puree
Buyer United Capital Partners, investment boutique founded by ex –Deutsche Bank executive
Seller Lebedyansky JSC, no.1 domestic fruit juice producer
Buyer Rationale re-sale to strategic buyer once spin –off is complete
Seller Rationale warehousing exercise ?
NBs baby food business to be spun off before sale of Lebedyansky JSC to Pepsico
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Recently we noted that the sale of Lebedyansky’s fruit juice business to Pepsico was 6 month’s later than expected, and that the company’s baby food business would later attract a strategic buyer such as Danone or Nestle. Well, this time they’ve been quicker, not slower, than predicted. Although the rationale for selling a minority stake to a financial investor is unclear, Lebedyansky is not doing them any favours with such a high valuation.

This baby food business is Russia’s market leader in its categories, with over 30% share in baby fruit and puree. It grew by 40% in 2007, to reach $ 125 mln in net sales. However, the EBITDA margin actually fell by 6% because of a major increase in supply chain costs; the company has had to extend its distribution reach and increase penetration in order to keep growing. Even so, with an EBITDA margin still in the region of 25%, there’s no upside there and in fact it’s likely to decrease further as market growth rates slow and competition intensifies. So, even if the EBITDA multiple is lower than that which Pepsico’s paying for the fruit juice business, this deal is fully valued on the basis of the Sales multiple (being the same as with Pepsico).

Nonetheless, the strategic attractiveness of this business is very compelling, and we can expect the likes of Danone, Nestle and Heinz to be very interested in acquiring the whole business later. Also in the running could be Nutritek, Russia's other big independent baby food player.

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THIS LEAD'S VALUATION
Size (€ mln) 50
Sector baby food
Asset Quality Russia no.1 branded
Seller mid-cap plc
Buyer private equity
P/S 2,6
P/Ebitda 10,0
Type total consideration
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