Glenboden M & A Originations

Potential partners for Ajinomoto’s Japanese food business overseas

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Origination Status company announcement of M&A options review, February 2009
Asset overseas food division of Ajinomoto (Japan), sauces & seasonings and frozen foods producer
Buyer candidates include ABF (UK), HJ Heinz, McCormick (both USA)
Seller Ajinomoto Co. Inc. (Japan), domestic conglomerate in food and ingredients
Buyer Rationale international expansion of ethnic brand portfolio, Asian expansion, synergies
Seller Rationale focus on amino acids and domestic foods businesses, strategic partner for overseas expansion
NBs 80% of Ajinomoto’s food division’s non –Japan sales are in other Asian countries
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Ajinomoto’s President has stated that ‘we intend to study M&As with companies, including overseas firms, in a proactive manner’. The assumption has been that Ajinomoto will be the acquirer, given its size and the strong yen as a purchasing currency. On the other hand, the group is expected to make a loss of some 13 bln yen in FY 2009; what’s more its strategic focus appears to be more on its amino acids division than on foods. Ajinomoto has an authentic Japanese foods portfolio that could fit the ethnic brands strategy of major food groups like Heinz, ABF or McCormick.

In addition to Ajinomoto’s 13 bln yen net loss forecast (y/e March 2009), the group expects a fall in net sales by nearly 5%, to reach 1,2 tr yen, and a halving of regular operating income to only 2% of sales. This is the second downwards revision of FY 2009 numbers by the group.

Although the group’s amino acids business has been hit by a strong yen and high materials prices, the bigger financial problems seem to be in the food business now. There, in addition to forex losses, the group recorded a goodwill impairment loss of 13 bln yen on its Amoy Food Group subsidiary.

Ingredients also appears to be the most strategic business for the group. Ajinomoto began life, 100 years ago, with a discovery in amino acids as a flavouring, especially in Japanese seasonings. Today, the group’s President’s main focus, in his official message, is to continue research in amino acids for flavour, nutritional and pharmaceutical ends. The food business does not get his attention in this way.

Its food division sales account for about 67% of Ajinomoto’s total revenue, that are estimated in the region of US$ 12 bln in FY 2009. That makes it a very large food operation indeed, arguably too large to be acquired in its entirety in this financial climate, even by the biggest food multinational.

However, within this, non –Japanese food sales, mostly in Asian countries like Thailand and Vietnam, come to a more digestible US$ 1,5 bln. Besides, it’s the overseas operations that provide the biggest growth opportunity, for a food major with global distribution clout in Asia or beyond it.

The key attraction of Ajinomoto’s food assets is their authenticity of origin, at a time when such ‘provenance’ is at a premium in global packaged foods. Brands like Hon-Dashi (Japanese stock e.g. for miso soup), Aji-No-Moto (umami seasonings), and Gyoza (soy sauce) are thoroughly Japanese. The group also produces rice bran oil and Chinese cook-in sauces.

The overseas rights to these brands and product formulas are surely of value to any major that’s building an ethnic portfolio. There are also likely to be synergy benefits; on its own, Ajinomoto’s overseas food sales booked an operating profit of only 8% of sales in H1 2009, which is very low for such categories as branded sauces and seasonings.

Potential buyers include Associated British Foods, with its fast-growing portfolio of authentic premium ethnic brands managed by Westmill Foods in the UK and by ACH in the US and Mexico. Also HJ Heinz, whose purchase of France’s Benedicta in 2008 shows that sauces and seasonings are of M&A interest to that group now. Another tip is McCormick; its giant portfolio already controls 40-60% of the US sauces and seasonings market. So, after recording record results in FY 2008, overseas expansion gives that group its best growth route.

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Size (€ mln) 400
Sector culinary products
Asset Quality Asian leader branded
Seller large plc
Buyer large plc
P/S 0,33
P/Ebitda n/a
Type est. brand value
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