Glenboden M & A Originations

Lifeway and Galaxy deals in US say acquire in growth categories during the downturn

Priority Rating priority rating 3
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Origination Status buyer announcement of acquisition, February 2009
Asset Fresh Made Inc (USA), no.2 domestic kefir producer (probiotic dairy)
Buyer Lifeway Foods Inc (USA), no.1 domestic kefir producer
Seller founders of Fresh Made
Buyer Rationale stronger presence in north-east USA, synergies, growth acceleration
Seller Rationale acceptable valuation, consolidation pressures, growth constraints
NBs both Lifeway and Fresh Made grew sales by 15 –20% in 2008
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In eastern Europe, kefir is a traditional, low-growth, commodity dairy product; meanwhile in the US, thanks to some innovation and marketing, it’s become an exciting and fast –growing functional drink. Lifeway is taking advantage of low materials costs, and interest rates, to increase its share of the probiotic drinks category in the US through acquiring its main competitor. This should set it up for accelerated growth, and mainstream retail presence, when the economic recovery arrives.

With sales revenue of about US$ 10 mln, FM is only about one –quarter of the size of the market leader in kefir, Lifeway. That makes it difficult for FM to compete, and even harder to expand, in what is still a niche dairy category in the US. Worries about growth in a recessionary 2009 might also have been a factor in the sale decision.

For Lifeway, the acquisition brings a new brand, with a relatively strong presence in north-east USA. It grows the top line by 25%, and includes an organic certified factory in Philadelphia. Most importantly perhaps, it could facilitate the expansion of kefir’s sales channels, as the product migrates from organic and specialty European outlets, to Costco and other majors.

Lifeway has cited continued growth in the dairy probiotic and organic categories, as well as low milk and other materials costs, as other factors behind the acquisition. Ironically it also credits the low interest rate environment. The company’s net debt will increase to about est. x3 EBITDA, as a result of this deal; although that’s still prudent, it explains why US$ 4 mln of the total consideration is deferred.

In a parallel development, also in new –frontier dairy in the US, Galaxy Nutritional’s main shareholder is making a tender offer to buy out its minorities, with the assistance of private equity firm Mill Road as co-investor. Galaxy is a US$ 25 mln turnover maker of organic cheese and dairy alternatives; the opportunity to boost sales, and take advantage of lower input costs, are the deal’s motivations.

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Size (€ mln) 10
Sector dairy
Asset Quality US no.2 niche
Seller small private
Buyer small plc
P/S 1,4
P/Ebitda n/a
Type total consideration
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