Glenboden M & A Originations

Sale of Uniq's convenience food portfolio starts with lowest-hanging asset

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Origination Status seller announcement of subsidiary divestment, June 2009
Asset Marie SAS (France), leading domestic branded convenience food producer
Buyer Groupe LDC (France), leading domestic poultry and delicatessen producer
Seller Uniq plc (UK), leading convenience food producer in UK, Germany, France, Holland, Poland
Buyer Rationale timing, brand, consolidation of French convenience food market, cost synergies
Seller Rationale growth constraint, debt reduction, focus on UK operations
NBs Uniq is in parallel selling its branded and non-branded businesses in northern Europe
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Uniq began to look for buyers or joint-venture partners for all of its non –UK operations, in March 2009. The group has demonstrated how difficult it is to achieve profitable growth in convenience food in recessionary market conditions. Given low margins, consolidation pressures and investment needed to premiumise the portfiolio, we believe that Uniq’s best option, after selling Marie and possibly Lisner, is to merge the rump of this business with another convenience food major with European ambitions.

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.

The Marie brand was the easiest asset to sell …Marie, in fresh and frozen foods and snacks, has held up well in recessionary conditions, is profitable, and has a market share of over 10% in its categories in France. But what about the rest of the portfolio ?

... with Lisner possibly next to be sold ...The Polish branded business, Lisner fish specialties, has a similar profile to Marie, and so might find a buyer amongst local processed fish majors, most notably Graal or Wilbo. It has been resilient to the recession, and is the clear market leader in Poland in the premium segment in its categories.

.... leaving the rump of the portfolio without an obvious buyer ...There are other bright spots in the mix, like the Netherlands sandwiches business that's growing strongly. Generally however the portfolio is weighed down by low-margin, unbranded, delicatessen type products, especially in Germany. These are not easily the subject of M&A activity.

Any buyer would need to invest substantially in branding, and/or in new premium products, that have a higher repeat purchase level, and relatively low materials costs and manufacturing complexity. Products like mini-pizzas or quiche or fish spreads, that are more like snacks than meals, are good examples.

… as well as presenting a restructuring burden …Also potential restructuring costs associated with factory consolidation, to improve efficiencies, are likely to dissuade especially non -trade buyers. Possibly a key reason for Uniq 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 merger with another convenience food player as the best optionA merger with another convenience food major in Europe, that already has production facilities in the same or adjacent countries as Uniq, and seeks consolidation and synergies, might now be the best option for these businesses.

Bakkavor, after a tough 2008, booked a 10% growth in sales in Q1 2009, and forecasts a 15% increase in EBITDA for FY2009. European sales made up less than 15% of the group's total, in Q1 2009, although that region grew by 50%, compared with flat sales in Bakkavor's main market, the UK.

That group is sure to be looking to further expand in Europe, especially in convenience foods rather than low added -value fresh produce.

Turning to Greencore, that group also reported underlying growth in sales and operating profit, in H1 2009. It has significant chilled food and snacks businesses in Holland and Germany, but Europe still constitutes less that 15% of total convenience food revenues. It may be however that Greencore is more focused, at this time, on entering the US convenience food market.

Whatever the outcome, the valuation of Uniq's business in likely to be low, and any deal might take the form of a cash -free merger. That's because of the time lag between improved trading performance, amongst potential buyers, and their return to free cashflow.

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THIS LEAD'S VALUATION
Size (€ mln) 75
Sector convenience food
Asset Quality France leader branded
Seller mid-cap plc
Buyer family
P/S 0,9
P/Ebitda 5,8
Type enterprise value
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