Glenboden M & A Originations

M&A options around Russia’s no.3 fruit juice player Nidan

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Origination Status proprietary deal origination, October 2008
Asset OAO “Nidan Soki” (Russia), joint no.3 domestic fruit juice producer with 15% market share
Buyer candidates include Eckes -Granini, Danone, Wimm-Bill-Dann
Seller Lion Capital (UK), private equity firm focused on consumer products, plus Nidan founders
Buyer Rationale expansion into fast-growing BRIC market, innovation and breakthrough potential
Seller Rationale acceptable valuation, defensive timing
NBs Lion Capital acquired a majority stake in Nidan in October 2007
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Lion Capital invested in Nidan only a year ago, so in theory it’s too early to seek an exit. However, it seems that consolidation forces are very strong in Russia, with both Coca-Cola and Pepsico committing huge sums to dominating its juice market. In addition, that market’s growth rate is likely to slow down now. So the risk for Lion Capital is that, in a few years’ time, it will only have bargain –seeking local investors to sell to. But it’s not too late to attract another international juice group, that’s prepared to pay a reasonable price for Nidan on the basis of a product differentiation strategy.

First to summarise the history and landscape. Coke made the first move, by acquiring Multon, Russia’s no.2 juice producer with about 20% market share, in 2005. Subsequently, Lion Capital made its investment in Nidan, Russia’s joint no.3 player, with about 15% share and leadership in Siberia where it has over 40% share, in 2007. Finally, Pepsico acquired the no.1 player in Russia with about 33% share, Lebedyansky, earlier in 2008. The other major player is Wimm-Bill-Dann, a local group, which like Nidan has about 15% market share.

In this context, what are Lion Capital’s M&A options for Nidan ?

Both Pepsico and Coke paid a lot of money to become, respectively, no.1 and strong no.2 in the Russian juice market. Pepsico paid nearly $ 1,5 bln, equivalent to x2,5 Sales, to gain control of Lebedyansky; three years earlier Coke paid about $ 500 mln, equivalent to x1,5 Sales, for Multon.

To get a decent return on their investment, the priority for these two majors will be to rationalize the brand portfolios, focus on mainstream juice categories, and manage the substitution by juice in replacing carbonated soft drinks. That leaves plenty of room for Nidan, to successfully evolve as a differentiated fruit juice specialist. But can that be achieved under Lion Capital’s stewardship alone ?

One option is for Nidan to merge with Wimm-Bill-Dann’s juice business, and to pool their resources. However, the rationale of challenging Pepsico’s market leadership is questionable; besides which, WBD is apparently keen to hold onto its fruit juice division, in spite of it constituting only about 20% of the group’s revenues, in order to maintain a ‘three-legged’ strategy (dairy, juice, baby food).

Another, possibly better option for Nidan is to secure a strategic investor that’s an international fruit juice specialist. Such an investor could provide know-how to exploit value-added categories with a health focus.

Such segments include baby fruit juices (growing twice as fast as the 10 -15% overall market growth rate in Russia); or superfruits (Russia’s most popular fruit variety is multifruit, not orange or apple like in developed countries, so there’s a ready consumer for value-added fruit types); or pre- and probiotic innovations. Pepsico and Coke can be beaten in all such categories.

Who are the potential candidates as strategic investor for Nidan ?

One tip in our view is Germany’s Eckes –Granini. That private group has grown steadily into a pan –European branded fruit juice and beverages group, organically and through acquisitions. Its revenues exceeding € 900 mln in 2007, and it has a strong innovation and health focus. Russia constitutes only 2% of the group’s revenues so far, supplied by its business in the Baltics; the acquisition of Nidan would be a big step for Eckes to achieve its ambitious growth targets to 2010.

Another possible acquirer for Nidan is Danone, which is expected by many in the industry to make a major strategic move into value –added fruit juice; Russia’s Nidan could provide an attractive place for the group to launch that.

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THIS LEAD'S VALUATION
Size (€ mln) 330
Sector fruit juice
Asset Quality Russia no.3 branded
Seller private equity
Buyer private corporate
P/S 1,5
P/Ebitda n/a
Type estimated value
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