Lotus teed up as European bakery consolidation target after Nordic acquisition
- December 01, 2008
||buyer announcement of purchase agreement, November 2008
||Annas Pepparkakor Holding AB (Sweden), authentic specialty Nordic biscuit producer
||Lotus Bakeries NV (Belgium), leading European authentic specialty bakery producer
||Accent Equity (Sweden), private equity firm specialized in mid-cap buyouts in Nordic region
||European expansion in authentic regional specialty bakery brands
||consolidation pressures, acceptable valuation after nearly 5 year holding period
||candidates to acquire Lotus include Lantmannen, Aryzta and Kraft
In recent months Glenboden has highlighted consolidation activity in bakery products, identifying the Swedish co-operative Lantmannan and the newly âmerged Aryzta in Ireland as major acquirors. Lotusâs purchase of Annas spotlights that companyâs building of a European portfolio of high âgrowth authentic specialty biscuits and cakes brands. This undoubtedly makes it an attractive acquisition candidate for the above two groups, and potentially Kraft also. Lotus cannot ignore buyer interest, because sales of its value âadded offering might be hit by greater consumer thrift in 2009.
Listed on Euronext Brussels, Lotus of Belgium began its European expansion when it acquired Hollandâs Koninklijke Peijnenburg in 2006. That deal brought together the leading caramelised biscuits, waffles and galette producer in Belgium, and the dominant gingerbread maker in Holland. Thus a platform for further European expansion was created, in the high âpotential category of authentic specialty biscuits and cakes.
Since then Lotus has achieved strong growth (turnover up 15% in H1 2008 to reach âŹ 125 mln), as well as a healthy EBITDA margin (18% in the same period); but without becoming overly âindebted (net debt declined by nearly 25% in H1 2008, to only x2,0 EBITDA). In terms of sustainability, 80% of the groupâs turnover is from branded sales.
If that wasnât attractive enough, Lotusâs geographic expansion is building momentum. Although 70% of sales are still in the groupâs home markets of Belgium and Holland, France now constitutes 15% of sales, and the acquisition of Annas marks Lotusâs entry into the high-value Nordic market. That company is market leader in traditional pepparkakor ginger biscuits in Sweden, and 70% of its sales are exported to the US and throughout Europe.
Lotus also acquired its Spanish distributor earlier in 2008, Lopez Market, and is investing in a factory in the Czech Republic and a joint-venture in the UK.
Lotus could decide to continue its acquisition trajectory now, since its net debt will still be low after this deal. However, it may not have the scale to take on more deals, in the current credit environment; in that case it might be wise to seek a buyer, while consolidation momentum still exists and before the consumer trades down to less premium alternatives.
Lantmannen Unibake, part of a Swedish farming co-operative giant, has ambitions to become Europeâs no.1 producer of frozen bakery products. Although its sweet portfolio is somewhat limited to Danish pastries, its growth rate and acquisition momentum are strong right now, with 20% top-line growth and three international purchases in H1 2008. Whatâs more, Lotusâs market entry into Unibakeâs home market, through buying Annas, gives the group defensive rationale for buying Lotus.
Aryzta may be a stronger candidate however. It claims to be global leader in specialty bakery; with total revenues expected to exceed âŹ 3 bln in 2008, itâs several times as big as Unibake. Also, it has a strong balance sheet, stock exchange listings so access to public equity capital, and continued appetite for acquisitions after its formation through the merger of IAWS and Hiestand earlier in 2008.
Lotus would complement Aryztaâs portfolio very well, with its emphasis on branded, fresh, sweet baked goods throughout Europe. Also, the group needs to regain its faltering growth momentum quickly.
The mighty Kraft Foods could outbid Aryzta, and almost any other buyer, if it wanted to acquire Lotus. Biscuits are now one of the groupâs five core categories, after its acquisition of LU in 2007, and after its divestment programme in the last five years covering grocery products, RTD cereals, sugar confectionery, savoury snacks and fruit juices.
In theory Kraft could make more bolt-on acquisitions in biscuits, as ânew incremental platformsâ in its turnaround plan to quote CEO Irene Rosenfeld. Arguably Lotus has the portfolio, growth and margin profile to add value to Kraft. Itâs more likely however that the groupâs emphasis on its â10 core brandsâ and âsix scale marketsâ will be too rigid.