Lifeway and Galaxy deals in US say acquire in growth categories during the downturn
- February 10, 2009
||buyer announcement of acquisition, February 2009
||Fresh Made Inc (USA), no.2 domestic kefir producer (probiotic dairy)
||Lifeway Foods Inc (USA), no.1 domestic kefir producer
||founders of Fresh Made
||stronger presence in north-east USA, synergies, growth acceleration
||acceptable valuation, consolidation pressures, growth constraints
||both Lifeway and Fresh Made grew sales by 15 â20% in 2008
In eastern Europe, kefir is a traditional, low-growth, commodity dairy product; meanwhile in the US, thanks to some innovation and marketing, itâs become an exciting and fast âgrowing 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 âquarter 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 kefirâs 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 companyâs net debt will increase to about est. x3 EBITDA, as a result of this deal; although thatâs still prudent, it explains why US$ 4 mln of the total consideration is deferred.
In a parallel development, also in new âfrontier dairy in the US, Galaxy Nutritionalâs 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 dealâs motivations.