Glenboden M & A Originations

Lantmannen set for more frozen bakery acquisitions after non–core divestment

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Origination Status seller announcement of business unit divestment, October 2008
Asset Lantmannen Farskbrod (Sweden), domestic branded fresh bread producer
Buyer Fazer Group (Sweden), Nordic foodservice, confectionery and baked goods company
Seller Lantmannen Unibake (Sweden), largest frozen bakery producer in northern Europe
Buyer Rationale to become no.2 branded fresh bread producer in Sweden, distribution synergies
Seller Rationale focus on core business of frozen bread and pastries for retail and foodservice
NBs Unibake’s declared strategy is to lead consolidation in Europe through acquisitions and alliances
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In recent months Glenboden has pointed to the perils of the fresh bread business for food groups, with reference to Barilla’s debacle with its Kamps subsidiary in Germany. Lantmannen is perhaps wisely now exiting from fresh bread, at least in Sweden, to focus on frozen products where competition is less fierce and fragmented. We can expect to see more acquisitions in that category, by Lantmannen, in its surge to become Europe’s no.1 producer. We identify some of the candidates, and assess the group’s main rival in that race, Aryzta.

Lantmannen Unibake is part of a Swedish farming co-operative giant. It claims to be the largest frozen bakery producer in Europe, or at least in the northern part, as well as having a significant branded fresh bread business.

Unibake delivers just over 15% of the group’s total revenue, but it’s acquiring and growing rapidly; its top-line increased by nearly 20% in H1 2008, to reach about € 400 mln; in that period it also completed three international acquisitions – Baco in Finland, Eurobuns in the UK (50% market share in frozen fast food bread), as well as Euro-Bake as its foot-hold in the US.

Within the Lantmannen Group, Unibake is the no.1 core -business investment priority. On its side are the group’s scale and healthy growth rate, with total turnover up 12% to € 3,6 bln in 2007. Also, the group has a divestment plan geared towards funding Unibake’s expansion, having sold not only Farksbrod but also its retail business Granngarden a few months’ earlier.

On the other hand, although Lantmannen’s equity ratio is a safe 50%, it’s fundamentally a low margin player, with an EBITDA margin of only about 6% in 2007. That, coupled with demands made on its balance sheet by capital expenditure, as well as its financial model as a co-operative, may make it difficult for Unibake to compete for the larger bakery acquisitions in Europe, most notably against Aryzta.

Formed from the merger of IAWS of Ireland and Hielstand of Switzerland earlier in 2008, Aryzta AG claims to be the global leader in value –added baked goods and convenience food, with total revenues of € 2,3 bln in 2007. This makes it about three times as big as Unibake.

Also, it has a strong balance sheet, and stock exchange listings and therefore access to public equity capital. It also has both a track –record in, and continued appetite for, acquisitions.

On the other hand, it’s less focused on frozen bread than Unibake, and may need some time to fully integrate after its merger, giving Unibake a window of opportunity to close some deals. But who are the candidates ?

Within Europe, bakery consolidation still has a long way to go.

The best acquisition candidate for Unibake is arguably Belgium’s Vandemoortele. A family –owned company, its three business areas are edible oils, soya –based products and frozen bakery. The latter constituted 30% of total revenues in 2007, or € 300 mln, and is now to double in size after the group’s acquisition of Pavani, France’s market leader in frozen bakery, earlier in 2008.

That acquisition would double Unibake’s overall scale, greatly expand its business in western Europe, and provide synergies with Belpan Holdings, the Belgian frozen bread and pastries producer that it acquired in 2006.

A more low –hanging acquisition candidate for Unibake is Sofrapain, a leading b2b frozen bakery supplier in France, which Premier Foods inherited when it acquired RHM in 2006, and for whose sale it reportedly retained an M&A advisor earlier in 2008.

The sale of Sofrapain would be consistent with Premier’s phased exit from bakery products, after the RHM acquisition, to focus on culinary brands instead. It would also help the group with its priority of reducing debt. It looks like valuation issues are a sticking point, however, with respect to the divestment of Sofrapain.

Another option for Unibake would be to diversify its portfolio into either crisp-bread or non-bakery frozen snacks, in one or more of its existing geographies. We can think of at least two candidates by those criteria; both owned by a private equity firm, Lion Capital, they’re available for sale, at the right price, at any time no doubt.

The first is Vaasan & Vaasan, which claims to be the no.2 crisp-bread producer in the world. More specifically, it’s the leading bakery business in Finland and the Baltic states, and the no.2 bake-off producer in the Nordic region. That company would add € 360 mln to Unibake’s turnover, representing growth of nearly 50%.

The other option is Ad van Geloven, the leading branded producer of frozen snacks and meal components in Benelux, with its flagship Mora brand acquired from Unilever in 2006. That company would enhance Unibake’s top line by € 170 mln, or 25%; it would also broaden its portfolio offering in both retail and foodservice channels, in a core geography for the group.

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