Glenboden M & A Originations

Neilson Dairy acquisition in Canada provides instructive valuation benchmark

Priority Rating priority rating 3
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Origination Status buyer announcement of signed agreement, October 2008
Asset Neilson Dairy (Canada), traditional dairy business serving Ontario region
Buyer Saputo Inc. (Canada), no.1 domestic dairy processor, with international presence
Seller Weston Foods (Canada), leading domestic bakery, dairy and soft drinks group
Buyer Rationale stronger presence in large Ontario milk and cream market, synergies
Seller Rationale acceptable valuation, consolidation and margin pressures
NBs valuation is in line with last acquisition by Saputa (EBITDA multiple)
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At a time of financial uncertainty in the world, and its impact on business valuations, it’s reassuring to see that crisis –free Canada is providing transparent and consistent valuation benchmarks, at least in the dairy business. It shows that a ‘nice-to-have’, basic dairy business is worth under x10 EBITDA, even if it has healthy financials and a strong market position in its geography. Expect more acquisitions by Canadian groups, at home and abroad, into 2009.

Saputo is a publicly –listed dairy giant, and a company to watch in terms of M&A activity going forward, at least in the Americas. As well as being the largest dairy processor in not only Canada but also Argentina, it’s the no.3 cheese producer in the US, its third main market.

Globally, it claims to be the 15th largest dairy processor in the world. If ever the dairy industry starts to consolidate on a global scale, like beer for example, then Saputo will be one of the players.

Neilson Dairy is a volume producer mainly of retail milk and other traditional white products such as cream and quarks. Hardly the high value-added categories of the future, but then the valuation is reasonable to low, given Neilson’s EBITDA margin of 8%, as well as synergies and new customer relationships that Saputo will benefit from.

It’s also in line with the x8,2 EBITDA that the group paid, earlier in 2008, for the Alto Dairy Co-operative cheese business in the US.

With Canada likely to endure the global financial crisis better than most developed countries, we can expect more acquirers, with healthy balance sheets and lines of credit, to emerge from that country. Let’s hope they continue to provide valuations that are so reasonable and transparent, in terms of both multiples and consideration.

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Size (€ mln) 290
Sector dairy products
Asset Quality Canada regional
Seller mid-cap plc
Buyer large plc
P/S 0,8
P/Ebitda 9,3
Type total consideration
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