Glenboden M & A Originations

Agros Nova asset sale options after private equity buy-out

Priority Rating priority rating 4
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Origination Status announcement of transaction agreement by buyer and seller, June 2010
Asset Agros Nova Sp. z o.o. (Poland), leading domestic FJND and culinary products group
Buyer IK Investment Partners, a European private equity firm with Nordic roots
Seller ITR Investment Partners, vehicle owned by Niewiadomski family
Buyer Rationale strong market position in culinary products; upside of juice brands consolidation
Seller Rationale debt burden, acceptable valuation, growth barrier
NBs transaction subject to anti-monopoly office approval
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A private equity firm, IK Investment Partners, is set to acquire Agros Nova, a leading fruit drinks and culinary products player in Poland. We look at IK's upside options going forward, and the potential for a 'surgical approach' to raise cash by selling certain 'low -hanging' assets in the short -term.

Group of 'rolled -up' businessesAgros Nova is an amalgamation of fruit juice, nectars and drinks ('FJND'), ready sauces and meals ('culinary') and conserves brands, 'rolled up' through M&A activity over nearly 20 years, that holds a top 3 market position in most of the 10 categories in which it operates in Poland.

Portfolio highlights include 'Fortuna' in FJND, 'Łowicz' in cooking sauces and ready meals, and 'Kotlin' in ketchup.

Sale driven by earlier buy -out ...The Niewiadomski family gained full control of Agros Nova in 2007, by buying out the 60% stake owned by its private equity partner, Enterprise Investors.

That transaction, plus the acquisition of Kotlin from Orkla in 2008, caused the group to incur a large amount of debt (see chart).

Originally the Niewiadomski family wanted to reduce that debt by ceding a minority stake to a private equity investor. But replacing debt with equity is not something that private equity likes to do, so the Niewiadomskis' thinking evolved to selling the whole business instead.

Upside for IK in the FJND business ...The new acquirer's priority could now be to focus on adding value to the FJND 'half' of Agros, potentially even with 'no -one getting hurt' in terms of major market share gains at competitors' expense.

... relatively fragmented brand portfolio ...According to Nielsen, as at 2008 Agros was joint -no.2 in the FJND category in Poland, with 15% share. That market is led by Maspex, with 35% share. The other major player is Hortex, also with around 15% share.

However, Agros' share is fragmented across a portfolio. It's flagship brand, 'Fortuna', is said to only have about 5% market share, with at least another three brands responsible for the other 10% share held by the group.

Meanwhile Maspex's market position is dominated by its 'Tymbark' brand and, to a lesser extent, its children-segment 'Kubuś; Hortex's share is all under 'Hortex'.

... brand migration key to strategic sale to majorsIf IK successfully implements a migration strategy, from Agros' lesser FJND brands to Fortuna, then it would be easier for it to later sell that business to a strategic buyer, by positioning it as a 'strong no.2' brand.

Given their recent history of acquiring leading FJND brands, most notably in the CEE region, plus the consumer trend to lighter drinks with higher margins, it's possible that Pepsico or even Coca-Cola might acquire such a business in Poland in future.

Culinary portfolio more mature ...The other half of Agros, its broad culinary portfolio, is a more mature business, in terms of both market share and brand concentration. It would be difficult for IK to add value to it, in the way outlined above regarding Fortuna in FJND.

At the same time, Agros' competitors in culinary, multinationals, might wish to acquire that business, in order to help consolidate the category.

That may define the division as a 'low -hanging' asset, which IK could sell in the short term, in order to repay some leverage and raise cash for investing in the FJND side of Agros Nova.

... Heinz and Unilever as potential buyers ...The most attractive parts of Agros' culinary division are its ready sauces (mostly ketchup and cooking sauces), and ready meals operations. These are mostly under two parallel brands with separate histories, 'Łowicz' and 'Kotlin'.

It's possible that Heinz ('Pudliszki' brand) and even Unilever ('Hellmann's') are interested in acquiring those brands, as both have a strong interest in the culinary categories that they occupy in Poland.

Nestle is a less likely candidate, as its main focus in Poland is on the seasonings, pouched products and ex-ketchup cold sauces categories within culinary ('Winiary' brand).

... sale may require a surgical approach ...Given that Agros' culinary assets are spread across not one but two brands, a split may be needed prior to or after sale; but split ups and category -based brand acquisitions have been implemented in CEE before.

Regulatory issues may prevent Heinz from acquiring both Łowicz and Kotlin, as that might entail the group controlling more than 50% of the ketchup and cooking sauces markets in Poland (including the big tomato concentrate category).

... split of Łowicz and Kotlin an option ...The solution might include a split whereby Heinz acquires Łowicz, and Unilever buys Kotlin. (A proviso is for Unilever to want to acquire a local brand at all).

Kotlin's flagship category is ketchup; through 'Hellman's', Unilever share of that market is only about 15%. If the group acquires Kotlin, about 67% of the Polish premium ketchup market would become split between Hellman's and Kotlin vs. Pudliszki and 'Heinz'.

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THIS LEAD'S VALUATION
Size (€ mln) 250
Sector FJND and culinary
Asset Quality Poland top 3 branded
Seller family
Buyer private equity
P/S 1,0
P/Ebitda 10,0
Type transaction value estimate
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