Glenboden M & A Originations

ABF is strategically poised to acquire Wessanen’s branded business

Priority Rating priority rating 5
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Origination Status proprietary deal origination, October 2008
Asset branded foods businesses of Royal Wessanen NV (Holland), multinational food group
Buyer Associated British Foods plc (UK), diversified international agriculture, food and retail group
Seller shareholders of Royal Wessanen
Buyer Rationale international expansion of authentic ‘world foods’ brand portfolio
Seller Rationale acceptable valuation, growth constraints, focus on core distribution business
NBs ABF’s grocery strategy is to manufacture and distribute authentic ethnic foods internationally
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Earlier in 2008, Glenboden pointed to Wessannen’s problems in transforming itself from a private label supplier into a new-frontier branded producer, and its vulnerability therefore as a takeover candidate. We think that ABF is a very appropriate buyer for the group’s branded business, for two reasons; (i) both groups are focused on building a portfolio of authentic ethnic premium foods, and (ii) both of them are focused on western Europe and the USA, so synergies might also apply.

ABF’s grocery products division, which contributes nearly 40% of the group’s total revenues of 6,8 bln GBP, contains a portfolio of legacy UK dry foods brands spanning hot beverages to bread and bakery products. A strategic priority is now to build an international portfolio of authentic ethnic premium branded foods, and most of its latest acquisitions testify to that.

Its subsidiary ACH is the leading retail distributor of herbs and spices in the US, having acquired Turkee, Tone’s and Spice Islands brands from Burns Phelp in 2004. In that year it also acquired Unilever’s Mexican oils and fats brands.

In the UK, ABF’s subsidiary Westmill Foods is the no.1 supplier to the ethnic wholesale trade, with a portfolio of noodle, rice, spices and condiments brands; it also acquired pan –oriental Blue Dragon brand in 2003. Most recently in May 2007, the group bought the authentic Indian meal accompaniments brand, Patak, established by the Pathak family in 1957.

Meanwhile, in the last three years Wessanen has divested its mature private label businesses, attempting to replace and exceed the resulting revenue gap by building a portfolio of branded health and premium taste products, with the underlying theme being ‘authenticity’, whether in terms of purity of ingredients or of ethnicity.

Unfortunately, owing to difficulties in transforming niche healthfood and ethnic store brands into mainstream ones, as well as a dearth of acquisitions in these categories by the group, its branded business in Europe and north America still constitutes only 40% of Wessanen’s total revenue of € 1,6 bln in 2007, with the rest coming from distribution activities. The groups overall sales have actually been stagnant in 2007 and H1 2008, with an EBITDA margin of only about 5%.

Given Wessanen’s weak performance, the timing might be right for ABF to make a bid for the group’s branded business, to achieve greater scale, commercialization potential and synergies in western Europe and north America. Wessanen would then remain as a scaled-down, pure-play distributor, or would simply cease to exist altogether.

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THIS LEAD'S VALUATION
Size (€ mln) 700
Sector ethnic food
Asset Quality Europe and US niche
Seller mid-cap plc
Buyer large plc
P/S 1,0
P/Ebitda 10,0
Type estimated value
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