Glenboden M & A Originations

Recent deals point to Bulgaria as an attractive platform for Balkans expansion

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Origination Status two definitive company acquisition agreements reached, January 2008
Asset Penelopa, leading domestic nuts and seeds producer; MyDay, leading domestic bottled drinking yoghurt producer (both Bulgaria)
Buyer Pepsico Inc (USA), multinational food group; Cola Dairy Products SpA (Italy), leading European manufacturer of whipped cream aerosols
Seller founders of Penelopa and MyDay
Buyer Rationale investment in fast-growing Bulgarian market, platform for Balkans expansion
Seller Rationale attractive valuation, timing
NBs Bulgaria has attracted more food industry FDI than Romania, since EU accession
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Like Romania, Bulgaria joined the European Union in 2007. These two deals signify that, of the two, Bulgaria has been quicker to attract foreign direct investment since then. Admittedly Bulgaria has the stronger food industry tradition, but we think this also reflects a stronger entrepreneurial streak in that country. Since Bulgaria has a population of only 7 mln, one third of Romania’s, one can also expect investments there to become platforms for serving the whole Balkan region. One can also anticipate that bigger European groups will make more acquisitions in that country in future.

Penelopa was established only 10 years ago, by a local entrepreneur called Yanko Lolov. It sells branded peanuts, sunflower seeds and other savoury snacks throughout Bulgaria, through its own direct distribution system. From a portfolio perspective, this deal is consistent with Pepsico’s global focus on ‘better for you’ snacking. Moreover Penelopa will strengthen PepsiCo's distribution system in Bulgaria for its global Lay's, Ruffles, Cheetos and Doritos brands.

Moving on to MyDay, this is the third major dairy acquisition in Bulgaria in six months. The country’s high per capita dairy consumption, and strong dairy tradition (they claim to have invented yoghurt and even feta cheese), has proved particularly attractive to investors from other southern European countries. In July 2007, Spanish private equity firm GED acquired FAMA, the country's third-largest dairy products maker by volume with 12% share. A month earlier, Vivartia of Greece acquired United Milk Company, Bulgaria’s leading milk processor and no.2 domestic yoghurt player. Now CDP of Italy, consistent with its new focus on the growing bottled drinking yoghurt segment, has acquired MyDay.

It’s interesting that the giant French dairy players, Lactalis etc, who have been so acquisitive elsewhere in emerging Europe, have allowed the Balkans to dip below their radar screen so far. This has given an opportunity to those smaller players from southern Europe. There may come a point, however, where the market grows to a level, in value and integration terms, for a secondary round of dairy M&A to occur in Bulgaria; for serving the Balkans market more broadly.

So what other ‘pearls’ can be found in the Bulgarian food industry? Glenboden has always been impressed by Olinezza, in culinary products, which fits the pattern of the Bulgarian private company cum Balkans platform. Also established by entrepreneurs, in the 1990s, it pioneered the mayonnaise category there, and has subsequently developed an authentic, branded Balkan sauces and appetizer portfolio, with lots of peppers and aubergines etc. We visited Olinezza on behalf of a client back in 1998, but no deal was reached them. Maybe during this cycle ? But who will step up to the plate ?

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