Glenboden M & A Originations

Spain’s Natra emerges as European chocolate champion after transformational Callebaut deal

Priority Rating priority rating 3
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Origination Status memorandum of understanding signed, March 2009
Asset Stollwerck, consumer chocolate division of Barry Callebaut
Buyer Natra SA (Spain), international private label chocolate producer
Seller Barry Callebaut AG (Switzerland), no.1 global manufacturer of b2b chocolate products
Buyer Rationale strengthen position as leading private label chocolate producer in Europe
Seller Rationale focus on core business of industrial and artisinal customers
NBs Callebaut will acquire a minority shareholding in Natra, as part of the deal
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Natra is an exciting company that’s emerging in the next generation chocolate world. Since 2004, through a string of acquisitions, it’s become a leading private label producer of finished chocolate products. This merger with Callebaut grows that business almost threefold overnight. Once the transfer, which is cash –free, has been finalized, Natra will emerge with the balance sheet strength, and strategic momentum, to make branded chocolate products acquisitions in Europe and beyond.

In 2004, Spanish liquid chocolate maker Natra decided to move downstream into finished chocolate products, where it saw big growth opportunities especially in the private label segment. In 2005 it acquired Jacali in Belgian, then in 2007 both All Crump in Belgium and Italy’s Nutkao. This enabled the group to grow its chocolate business very quickly; in 2008 its sales revenue exceeded € 300 mln, marking a 33% increase over 2007.

In the European private label segment, Natra now claims to be joint no.1 in chocolate bars and no.2 in spreads. It’s also a major Belgian chocolates producer, and no.1 in chocolate tablets in France. It sells in 60 countries, serving 24 of the 30 top retailers in Europe, with 90% of its sales being outside Spain. It recently signaled global ambitions by opening commercial offices in Shanghai and California.

Natra’s potential is both underlined and hugely strengthened by this deal. Callebaut, in spite of being global b2b leader and nearly x10 as big as Natra in revenue terms, is prepared to cede its consumer chocolate business to that group, allowing Natra to increase its pro forma 2008 revenues to € 850 mln.

What’s Callebaut’s rationale for this deal, and how will it be funded ? All signs are that this is a cash –free set of transactions, based on some offsets, with ‘transfer’ and ‘integrate’ being the operative words. In return for the Stollwerck business, Callebaut will gain a major supply contract for liquid milk to Natra, as well as a minority shareholding in that group.

Intriguingly also, as part of the deal, Natra agrees to reduce its shareholding in Natraceutical, its functional chocolate business for industrial clients, to below 50% and to no longer consolidate that business in the group’s accounts. This suggests that Callebaut sees Natraceutical as a significant threat to its own ambitious, in the high potential area of b2b functional chocolate.

Callebaut, by exiting the private label businesses, may also benefit from no longer having conflict-of-interest problems with its outsourcing and industrial customers, which include Cadbury and Hershey. This is a factor which Glenboden has drawn attention to in the past.

Coming back to Natra, after this deal it will have the profile and the momentum to make further acquisitions in finished chocolate products, including branded. The Stollwerck brand will give it a start in that segment which, although slower growing in volume terms than private label, would provide badly –needed profitability enhancement to Natra, whose chocolate EBITDA margin in 2008 was only 9% and in decline.

But will the group have the balance sheet strength for further acquisitions ? That depends on the offsets in this transaction. It’s likely that the amount of new debt raised by Natra will be relatively low, if the consumer business transfer valuation is reduced by the sum of the liquid chocolate supply contracts and minority shareholding that Callebaut is receiving. In that case, Natra’s net debt ratio, which was a high x7,0 at the end of 2007, may be significantly reduced given the major incremental EBITDA that Stollwerck brings.

There are precedents for private label foods producers to expand into the branded segment, to improve margins, with the Ralcorp acquisition of Post RTD cereals from Kraft in 2007 being a good example. We believe that Natra will follow that route also.

In terms of specific acquisition options, in branded chocolate products, the group could make an approach to Nestle. That group’s chocolate confectionery portfolio in developed Europe is, at the end of the day, non –core and doesn’t fit in with Nestle’s ‘health and wellness’ strategy. The manner in which that group ceded control over to its Lion bar brand, to Callebaut in 2007, testifies to that.

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Size (€ mln) 245
Sector chocolate
Asset Quality private label leader Europe
Seller mid-cap plc
Buyer large corporate
P/S 0,8
P/Ebitda 9,0
Type value estimate
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