Glenboden M & A Originations

Some acquisition options for Bonduelle in prepared vegetables

Priority Rating priority rating 4
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Origination Status management announcement of acquisition intent, October 2008
Asset candidates include Vaughan Foods (USA), Hortex (Poland)
Buyer Bonduelle S.A. (France), no.1 prepared vegetable producer in Europe
Seller founders and public shareholders (Vaughan Foods), Argan Capital (Hortex)
Buyer Rationale expansion in CEE and north America, economic downturn’s effect on valuations
Seller Rationale acceptable valuation in challenging cost conditions
NBs Bonduelle’s interested in branded and unbranded businesses in canned, frozen and fresh vegetables
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Bonduelle, the king of value-added vegetables in Europe, has seen its growth rate screech to a halt in Q1 2009, after very impressive numbers in FY 2008. Coupled with an economic environment that’s troubling many smaller players, this has prodded the group’s CEO into announcing headroom for more debt and an openness to new acquisitions. North America and central & eastern Europe are likely to be the preferred geographies, in our view, given Bonduelle’s investment initiatives in those regions. We look at criteria and identify a couple of potential candidates.

Bonduelle has an ingeniously simple focus on vegetables, in all their forms (canned, frozen or chilled), as well as a strong innovation function (breaking new ground in areas like bagged salad mixes). This gives it a tremendous long-term growth trajectory, given consumer trends to healthier eating, which was borne out by nearly 20% growth in revenue in 2008.

However value-added vegetables, especially fresh ones, are also sensitive to economic downturns; this was confirmed by a 5% drop in turnover in Q1 2009, which Bonduelle attributes to the consumer trading down to private label alternatives.

In order to regain its growth momentum, the group is now targeting acquisitions more keenly. It aims to close the acquisition of La Corbeille, a canned vegetable business in Belgium, by the end of 2008; in parallel it’s forming a joint-venture with Coopagri in frozen foods in France.

In both cases, the emphasis is on private label; this segment now constitutes 35% of Bonduelle’s total revenue, and acts as a ‘hedge’ in harder times when the consumer trades down from its branded portfolio.

In terms of future acquisitions, the group is keen to diversify beyond western and northern Europe, which still contribute >80% of total sales. The remainder is mostly in CEE and north America, but these are the geographies where the group’s development function has been most active.

It acquired Aliments Carriere in 2007, Canada leading frozen and canned vegetable producer; in parallel it has invested in production capacity not only in Poland and Hungary, but also more recently in Ukraine and Russia (Krasnodar region).

One tip in the US market is Vaughan Foods. It’s largely an unbranded supplier of fresh-cut salads and refrigerated prepared vegetables, soups and side-dishes, but this is where a lot of the growth is in north America, and Bonduelle is not averse to unbranded businesses. Based centrally in Oklahoma, it has a relatively big sales reach for a fresh supplier, covering half of the USA. In revenue terms it doubled in size in 2004 -7, and exhibited a growth rate of > 45% in YTD 2008.

At the same time it’s looking vulnerable to takeover; having gone public in 2007, it’s booked an operating loss in Q3 2008 caused by high materials’ costs, and is now in breach of its debt covenants.

Vaughan Foods only has revenues of about $ 80 mln (2008F), but that would allow Bonduelle to nearly double its turnover in north America, as well as provide a platform for further acquisitions in the fragmented fresh segment.

On the other end of the scale, and coming back to potential acquisitions in central & eastern Europe, Hortex still hasn’t secured a buyer. With revenues of > € 200 mln, it’s the clear market leader in frozen foods in both its native Poland and in Russia, where it enjoys very high brand awareness levels and a strong legacy position. It’s exactly the brand that Bonduelle needs to complement its investment in production capacity in CEE.

The owner of Hortex, private equity firm Argan Capital, has been trying to sell it since at least 2007; a price expectation of apparently x1,5 Sales is rumoured to be the main sticking point. Maybe now enough factors will fall into place, to enable buyer and seller to meet somewhere and strike a deal.

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