Glenboden M & A Originations

Potential buyers for Vandemoortele’s market leading dairy alternatives brands

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Origination Status management announcement of sale intent, January 2009
Asset Alpro Soya (Belgium), no.1 European soy –based dairy alternative brand
Buyer candidates include Danone (best case), Wessanen (base case)
Seller Vandemoortele Group (Belgium), leading European b2b frozen bakery and oil & fats producer
Buyer Rationale long –term potential of dairy –alternatives category
Seller Rationale focus on core bakery and lipids businesses, raise capital for expansion
NBs Alpro division contributed 20% of Vandemoortele’s total revenues in 2008
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On the face of it, soy –based alternatives to dairy and meat is an exciting business, in terms of health and sustainability. Indeed, Vandemoortele insists it’s ‘difficult to find a consumer brand that’s more relevant to the 21st century’ than Alpro. The reality however is that growth in this category has declined in Europe. and is now only about 5% p.a. It’s in this context that we look at potential buyers for Alpro. Also, we consider prospects for Vandemoortele’s core businesses, frozen bakery and oil & fats, from an M&A perspective after this divestment.

Vandemoortele is a family –owned group whose performance has been mixed recently. Turnover grew by 12% in 2007, to reach € 970 mln, with both volume and market share gains in all three of its divisions. This growth rate was bettered in 2008, with the acquisition of Pavani, the market leader in frozen bakery in France, which added € 300 mln to the group’s top line.

On the other hand, and because Vandemoortele’s two largest divisions, bakery and lipids, which together account for 80% of total revenue, are unbranded b2b players, the group has been especially susceptible to input cost pressures; in 2007 its EBITDA margin declined to 9%, a result unlikely to have been bettered in 2008.

On top of margin pressures, Vandemoortele has been challenged from a funding perspective. The acquisition of Pavani in 2008, far larger than anything previously purchased by the group, is likely to have raised net debt from about x1,5 EBITDA at the end of 2007 to upwards of x5,0 EBITDA. The group announced a capital increase in September 2008, to reduce this debt mountain.

Even so, it’s likely to still be facing financial pressures, and not only because the general economic environment has deteriorated; Pavani presents a costly restructuring challenge for its new owner – its 20 sites in France are twice as many as Vandemoortele previously managed across six countries.

In this context it’s understandable that the group is looking to sell its smallest division, and the only one with a ‘business to consumer approach’. But is soy –based a serious enough category, these days, to find an enthusiastic and major buyer ? Given the uncertain future of the category, Alpro is unlikely to attract much interest from private equity.

Only a strategic investor, with not only the belief but also the R&D and marketing clout to turn soy –based into ‘the next big thing’, could take on such a challenge. In that case one of the big value –added dairy groups, in particularly Danone with its innovation excellence, might step up to the plate. Alpro is, after all, market leader in soy –based dairy alternatives in Europe, and Danone is worried about future threats to dairy sales like cholesterol.

Otherwise Alpro might end up being sold cheaply, to a group that’s nurturing a portfolio of healthy but so-far niche brands. An obvious contender there is Wessanen, with its emphasis on healthfood and organic sales channels in Europe, and after its acquisition in 2008 of the no.2 player in soy –based dairy alternatives in the UK market, So Good. Wessanen might itself be a takeover target, however.

Assuming Vandemoortele does achieve a satisfactory sale of Alpro, how will it leverage that to bolster its core businesses ? Frozen bakery is a category that’s growing by 5 -10% p.a. in Europe now, and continues to be subject to consolidation activity. Glenboden had previously tipped Vandemoortele as a potential seller of its € 600 mln frozen bakery division, to Aryzta or Unibake.

More likely now is for the group to continue to be an acquirer, with targets including Vaasan & Vaasan, a leader in the Nordic region and owned by Lion Capital.

Turning to its oils and fats business, with revenues of over € 400 mln, Vandemoortele might be wise to bolster its margins, in this high input cost category, by adding a branded business to its existing b2b portfolio; apparently Unilever still has edible oil assets to sell.

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THIS LEAD'S VALUATION
Size (€ mln) 260
Sector dairy alternative
Asset Quality no.1 Europe branded
Seller private corporate
Buyer mid-cap plc
P/S 1,0
P/Ebitda n/a
Type value estimate
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