Glenboden M & A Originations

Potential buyers for Uniq’s European convenience food businesses

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Origination Status investor search process declared by management, March 2009
Asset northern Europe and France operations of Uniq plc (UK)
Buyer options include private equity buyer; or merger with Greencore
Seller Uniq plc (UK), leading convenience food producer in UK, Germany, France, Holland, Poland
Buyer Rationale timing, premiumisation potential of certain assets in portfolio (PE); cost synergies (merger)
Seller Rationale growth constraint, losses, debt increase, focus on UK operations
NBs losses and restructuring costs caused Uniq’s net debt to grow to x2,0 EBITDA in YTD 2009
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Uniq has publicly begun the process of finding buyers or joint-venture partners for all of its non –UK operations. The group has demonstrated how difficult it is to achieve profitable growth in convenience food, a problem that has also affected other big public companies in that space in Europe, notably Bakkavor and Greencore. We believe that Uniq’s main options are to attract a private equity buyer, prepared to both wait for better times and seek premiumisation opportunities in the portfolio; alternatively to merge with Bakkavor or Greencore, to extract cost synergies and increase scale.

The businesses for sale are substantial in European convenience food …These businesses are major producers of chilled and frozen meals, desserts, salads, sandwiches and fish specialties, in France, Germany, Holland and Poland. Sales split between branded, private label and food service; combined sales in 2008 of 460 mln GBP, constituting about 60% of Uniq’s total revenues.

… but that’s a difficult category for sustainable growth and profitabilityThe problems encountered by Uniq here, common to convenience food in general, include high materials costs, manufacturing complexity and SKU inflation, private label encroachment, and the consumer trading down to non –premium offerings during a tough 2008 in Europe.

As a result, the group continues to exhibit low or negative growth, and operating losses. That, combined with restructuring charges and factory closures in its UK operations, has caused Uniq’s indebtedness to increase from a comfortable net cash position, to net debt of 27 mln GBP, equivalent to x2,0 EBITDA, in one year to end Q1 2009.

There are opportunities to premiumise parts of the portfolio …However, there are bright spots in the businesses that, in addition to a low valuation, could be capitalized upon by an active private equity investor. The Netherlands sandwiches business is growing strongly. Moreover, the French and Polish branded businesses, respectively Lisner fish specialties and Marie chilled and frozen foods, have held up relatively well, especially in profitability terms, and have market shares of above 10% in their categories and markets.

There exists the potential to leverage these brands, and develop new premium products that have a higher repeat purchase level, and lower materials costs and complexity, than convenience food does in general. A good example in Uniq’s history was the St Hubert spreads business, the clear market leader in France that delivered an EBITDA margin of over 30%; ironically, Uniq sold that jewel in its portfolio, to Dairy Crest in 2006.

… but restructuring costs might be prohibitive for many buyers …One big factor that might discourage private equity, however, is potential restructuring costs associated with factory consolidation, to improve efficiency and profit. It’s likely that a key reason for Uniq to seek to divest its Continental businesses, now, is that it doesn’t want to shoulder the same restructuring burden, as it has in the UK, another time and further from home.

… leaving a merger with another convenience food player as the alternative In that case, a merger with other walking wounded in convenience food in Europe, notably Greencore, might make sense if it can be financed. That group has significant chilled food and snacks businesses in Holland and Germany. Substantial synergies could be extracted from such a merger; a major restructuring effort would ensue however.

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THIS LEAD'S VALUATION
Size (€ mln) 115
Sector convenience food
Asset Quality European major
Seller mid-cap plc
Buyer private equity
P/S 0,2
P/Ebitda 8,0
Type value estimate
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