Glenboden M & A Originations

Proposed sale of Kamps by Barilla highlights dangers of branded fresh bakery

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Origination Status media reports about subsidiary divestment, February 2008
Asset Kamps AG (Germany), leading domestic baking specialist
Buyer private equity ?
Seller Barilla (Italy), no.1 global pasta producer
Buyer Rationale attractive valuation
Seller Rationale damage limitation
NBs Barilla acquired Kamps in 2002, at a valuation of € 1,7 bln
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What a sad story. We remember, when Barilla bought Kamps, how many people thought they were paying far too much for a company that had a crazy growth rate and a very precarious business model. Barilla paid a multiple of x1 for this business in 2002. Since then, Kamps’ sales revenue has fallen by 30%, and its EBITDA has halved. How big a loss will Barilla make, if it sells the business now, especially given the current high raw materials cost environment ? Maybe 1 bln Euro ? They should hold onto it for now; maybe stick with their earlier plan of taking it public in 2010.

Back in 1996, Kamps went through an MBO. No doubt with an eye on their future exit, management then embarked on a ‘land grab’ strategy, acquiring local bakery chains and opening new outlets everywhere, as a result of which the company’s sales grew eightfold in only five years.

This exit strategy clearly worked perfectly. It had become the biggest bakery business in Europe, which brought it squarely onto the radar screens of the big foods groups. Barilla acquired Kamps in what, at the time, was reported as a hostile takeover; but the hostility was only really about valuation.

Kamps runs about 1.000 bakeries, mostly franchised, that act as ‘craft’ retail points. It also supplies 20.000 grocery stores and multiple outlets with fresh packaged bread on a daily basis. Its two brands are Golden Toast, Germany’s no.1 toasting bread, with a line in bake –off also; plus Lieken Urkorn, a packaged whole-grain bread range.

Fresh bakery in Europe is a category with a very long tradition, and a lot of fragmentation, where the virtues of craft and proximity are important. The negative implications of this became clear to Barilla once Kamps stopped expanding its network. Sales stopped growing; indeed they began to decline when competition from discount chains started to bite, in response to which Kamps commoditised its offering somewhat through its unbranded Baker’s Family discounter line. Then in 2007 the company began to restructure, to close some of its biggest bakeries; now we hear about a possible sale.

Surely a big lesson from this is that branded fresh bread is a risky business. It’s very hard to compete with small independent bakeries; not only on price but also on perceived freshness – the consumer doesn’t fully trust packaged bread, in continental Europe, in this respect.

Barilla now know that they should stick to long-life crisp-bread, especially under their Wasa brand, which is a truly branded category with much less competition and higher entry barriers.

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