M&A options around Russiaâs no.3 fruit juice player Nidan
- October 08, 2008
||proprietary deal origination, October 2008
||OAO âNidan Sokiâ (Russia), joint no.3 domestic fruit juice producer with 15% market share
||candidates include Eckes -Granini, Danone, Wimm-Bill-Dann
||Lion Capital (UK), private equity firm focused on consumer products, plus Nidan founders
||expansion into fast-growing BRIC market, innovation and breakthrough potential
||acceptable valuation, defensive timing
||Lion Capital acquired a majority stake in Nidan in October 2007
Lion Capital invested in Nidan only a year ago, so in theory itâs 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 marketâs growth rate is likely to slow down now. So the risk for Lion Capital is that, in a few yearsâ time, it will only have bargain âseeking local investors to sell to. But itâs not too late to attract another international juice group, thatâs 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, Russiaâs no.2 juice producer with about 20% market share, in 2005. Subsequently, Lion Capital made its investment in Nidan, Russiaâs 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 Capitalâs 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 Capitalâs stewardship alone ?
One option is for Nidan to merge with Wimm-Bill-Dannâs juice business, and to pool their resources. However, the rationale of challenging Pepsicoâs 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 groupâs revenues, in order to maintain a âthree-leggedâ strategy (dairy, juice, baby food).
Another, possibly better option for Nidan is to secure a strategic investor thatâs 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 (Russiaâs most popular fruit variety is multifruit, not orange or apple like in developed countries, so thereâs 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 Germanyâs Eckes âGranini. That private group has grown steadily into a pan âEuropean branded fruit juice and beverages group, organically and through acquisitions. Its revenues exceeding âŹ 900 mln in 2007, and it has a strong innovation and health focus. Russia constitutes only 2% of the groupâs 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 âadded fruit juice; Russiaâs Nidan could provide an attractive place for the group to launch that.