Glenboden M & A Originations

Strauss coffee business ready for further acquisitions after private equity capital injection

Priority Rating priority rating 4
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Origination Status completion of acquisition of 25% stake by private equity firm, September 2008
Asset Strauss Coffee BV (Holland), no.1 ground coffee supplier in CEE and no.2 in Brazil
Buyer TPG Group (USA), private equity firm
Seller Strauss Group (Israel), no.2 domestic food & beverages group
Buyer Rationale to enhance growth with a view to exit in 3 – 5 years’ time
Seller Rationale to gain capital for further acquisitions in core geographies
NBs Strauss claims to be 7th largest global coffee company by green coffee consumption
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Earlier in 2008, we identified Strauss Coffee as a ripening acquisition candidate, after its acquisition of leading brands in Russia in April 2008. We argued that the growth rate peaked in 2007; that the group should maximize its exit value, after having put in place a sound platform in Russia; that Strauss should instead focus on its newer longer-term growth businesses in the US. Well, it looks like Strauss might have missed the opportunity to sell at the peak, but at least it’s brought in fresh private equity capital, to grow the business to another level and exit in a few years’ time instead.

We earlier argued that Strauss’ coffee business, having grown by nearly 25% in 2007, would find it very hard to repeat that feat in 2008. Sure enough, that business grew by only 16% in H1 of 2008, dropping to 13% when the effects of forex and acquisitions are neutralized.

By contrast, Strauss’ promising new US businesses, Sabra in humous and chilled dips, and Max Brenner in away-from-home indulgence, grew respectively by 34% and 21% in the same period (after forex neutralization).

The rationale is even stronger, therefore, for Strauss to focus on these US businesses, rather than on its more mature coffee operations. Perhaps that’s why it’s brought in a private equity partner, at this stage; to free up capital for further investment in new categories in the US, while also gaining a partner with expertise in knowing when and how to sell the coffee business in the future.

In the short term, we can expect further bolt-on acquisitions by Strauss Coffee, in its core geographies of CEE and Brazil. Shortly after acquiring theChornaya Karta and Kaffa brands in Russia, the company bought rights to the Doncafe brand in Albania, Kosovo and Macedonia, to expand that portfolio beyond Serbia and Montenegro.

There are a number of other independent candidates, that might also be on Strauss’ target list, for example Mokate in Poland.

Then in a few years’ time, Strauss and TPG will be able to proffer an even –more established and large scale coffee business, possibly will turnover approaching the € 1 bln mark. Maybe there’ll be more strategic buyers at that point, not least of all the still –hibernating Sara Lee.

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THIS LEAD'S VALUATION
Size (€ mln) 200
Sector coffee
Asset Quality CEE no.1 branded
Seller mid-cap plc
Buyer private equity
P/S 1,4
P/Ebitda 10,8
Type enterprise value
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