Glenboden M & A Originations

New geographies for Eckes-Granini juice acquisitions after Russia exit

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Origination Status Proprietory origination, July 2009
Asset candidates include Hortex (Poland), Rosinka (Ukraine)
Buyer Eckes AG (Germany), leading independent European chilled juice producer
Seller private equity (Hortex), Orangina Schweppes (Rosinka)
Buyer Rationale regain growth momentum, geographic expansion in Europe
Seller Rationale acceptable valuation during economic downturn
NBs Eckes-Granini claims 12% value share of European fruit juice market
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Eckes-Granini is arguably the most dynamic and attractive fruit beverages group in Europe at this time, having expanded furiously in terms of geographies, brands and segmentation since 1993. However, owing mainly to its withdrawal from the 'risk-ridden' Russian market, this growth stalled in 2008. To regain its momentum, we believe that the group should make acquisitions in new geographies in Europe; brands in Poland the Ukraine are potential candidates.

Eckes is a pan -European juice independent ...Since the sale of its spirits business in 2007, Eckes-Granini has become a pure-play fruit beverages company, focusing on no.1 or strong no.2 positions in the markets where it operates directly. These are numerous; Eckes is present in 14 countries in Europe, from the Nordic region across to Spain (see chart).

... with a focused brand strategy ...Through organic development and a string of acquisitions, Eckes has built a portfolio of brands, both international and 'local heroes'. Its biggest three are Granini, its flagship premium international brand (35% of sales), Hohes C, its chief wellness offering that claims to be no.1 in its category in Europe (25%), and Joker in France, acquired in 2001 (15%). Clearly the group is focused on strategic brands.

... but growth has stalled recentlyGrowth has however slowed in recent years. The group's medium-term CAGR is only 5%, and fruit juice sales were flat in 2008, even recording a 7% decline in volume terms. With total revenue of about € 900 mln in 2008, Eckes may struggle to reach its target of € 1 bln in sales in 2010.

Acquisitions in CEE could re-build momentum ....Having sold its Uslada brand in Russia in 2008, thus withdrawing from direct sales in that country, Eckes has lost a key geography in its European footprint. On the other hand, the group has an impressive acquisition record in the last two years, and its export unit sells mainly in central Europe. We therefore believe that new deals in that region should make up the group's growth shortfall.

... and Eckes has positive deal momentumBeating other bidders icluding Arla, Eckes acquired Bramhults, the leading premium chilled juice producer in the Nordic region, in 2007. In 2008 three further purchases were made, also of chilled juice specialists; Elka in Germany, Ulti in France and Zamba in Switzerland.

Turning to experience in 'emerging Europe', Eckes has been successful in its Romanian operation, jointly managed with Carlsrom. 2008 saw growth in sales, market share and recognition rates for its Granini brand, in that market. So, direct operations in the eastern half of Europe can be fruitful for Eckes after all..

The group can add value and margins to CEE brands ...Eckes could capitalise on its export experience in other CEE countries, by making strategic acquisitions in one or more of them. The margins may be low in the short term but, as a family business running on en EBITDA margin of only 7% in 2008, this shouldn't be a deal -breaker.

In addition, with the group's focus now on chilled, fresh juices in PET bottles, there's lots of scope for adding value to brands in the CEE region, where the chilled shelf is in its infancy.

... with Hortex as an option in Poland ...The sale of Hortex in Poland, by Argan Capital, is a long-running saga. The key problem is to divide brand rights between the juice business and the frozen foods one; there are private equity funds that are rolling up frozen food assets across Europe, notably CapVest, who could partner with Eckes in such a de-coupling.

Fundamentally, Hortex is a strong legacy brand, with very high recognition rates in both Poland and Russia. Ostensibly it's only no.3 in the Polish juice market, with 15% volume share; the no.2 however, Agros Nova, is a portfolio of brands, and so as a single brand Hortex is likely to be no.2 behind Tymbark.

... and Rosinka likewise in UkraineTurning to Ukraine, Orangina acquired Rosinka in 2007. That brand has a strong position in the key market of Kiev, and the acquiror's strategy is to expand it nationwide. Being owned by private equity, Orangina is always a seller at the right price; with the correct approach, Rosinka could be a strong no.2 for Eckes in Ukraine, behind Sandora owned by Pepsico.

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THIS LEAD'S VALUATION
Size (€ mln) 150
Sector fruit juice
Asset Quality Poland no.2 branded
Seller private equity
Buyer private corporate
P/S 1,4
P/Ebitda 12,0
Type value estimate
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