Glenboden M & A Originations

Mexico's Grupo Bimbo emerges as bakery leader in the Americas after Weston acquisition

Priority Rating priority rating 4
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Origination Status joint announcement of agreement subject to closing, December 2008
Asset fresh bread and baked goods business of Dunedin Holdings S.a.r.l (USA)
Buyer Grupo Bimbo SAB (Mexico), leading bakery products group in Mexico and south America
Seller Weston Foods (Canada), domestic food retail, bakery and soft drinks group
Buyer Rationale to become leader in US bakery market, positive financial impact, synergies
Seller Rationale acceptable valuation, consolidation pressures, focus on biscuits and frozen bakery
NBs deal does not include Dunedin’s biscuits and frozen bakery businesses (Interbake, Maplehurst)
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Earlier in 2008, Weston Foods divested its dairy business in Canada, Neilson, at similar multiples; these deals provide instructive valuation benchmarks for assets with that profile in this environment. Moreover, this bakery acquisition marks out Grupo Bimbo as a Mexican champion, in bakery products, with leading market positions throughout the Americas. We should anticipate further consolidation plays driven by this group, in the next year; also there’s potential for a big cross –Atlantic tie-up.

Before this deal, Bimbo had grown by 30% in the period 2005 -8; this acquisition of Dunedin will add another 30% to the group’s total revenue, pushing it to just below US$ 10 bln. It will also serve to diversify Bimbo’s revenue base, which hitherto had been 85% concentrated in Mexico.

In fact, the group can now be described as a truly pan –Americas bakery leader; no.1 or strong no.2 in five categories in Mexico, overall no.1 in 13 countries in south America, and now no.1 in the US also.

Financially, the deal seems to fit very snugly : the EBITDA margin of the acquired assets, at 12%, is just above Bimbo’s own level; the group’s debt ratio will increase, from x1,2 EBITDA to x3,3, but this seems feasible even in current debt markets (below the resistance level of x5,0).

The deal terms include an interesting provision, which may become standard in this environment, whereby the buyer agrees to pay an abort fee of US$ 100 mln if unable to raise funding for the deal by June 2009.

Even so, the acquisition of Dunedin is transformational for Bimbo’s US business, and could provide the basis for further add-on purchases in that market. Pre-deal, the group derived only 5% of its revenues from the US, where it was nationally just no.4 and had delivered a CAGR of merely 6% since 2004.

Dunedin grows that business sevenfold in one go; it also comes with six brands, which will complement Bimbo’s existing brand portfolio in that fragmented bakery market, allowing it broader coverage in terms of regions, categories and occasions.

Synergies will also be significant, and Bimbo projects a significant decrease in its net debt in the next few years; we predict that smaller add-on buys, to fill regional or portfolio gaps in north America, could happen as early as 2009.

Throughout 2008, Glenboden has drawn attention to consolidation in bakery products in Europe, pointing to Aryzta (Ireland) and Lantmannen Unibake (Sweden) in particular as the emerging champions on that continent.

In Grupo Bimbo, we have a counterpart for these groups in the Americas; cross –Atlantic M&A activity in this sector, including possibly a stock-heavy merger of Bimbo and Aryzta, shouldn’t be ruled out in 2009.

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Size (€ mln) 1.800
Sector fresh bakery products
Asset Quality US leader branded
Seller mid-cap plc
Buyer large plc
P/S 1,1
P/Ebitda 9,3
Type total consideration
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