Glenboden M & A Originations

How serious is Campbell Soup about buying United Biscuits ?

Priority Rating priority rating 5
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Origination Status reported acquisition interest, September 2010
Asset United Biscuits Topco Ltd (UK), global no.3 biscuit producer
Buyer candidates include Campbell Soup Company (USA)
Seller Blackstone Group LP (USA) and PAI Partners (France), private equity firms
Buyer Rationale major expansion of snacks business beyond north America, strong EBITDA
Seller Rationale acceptable valuation, timing
NBs Premier Foods (UK) and The Kellogg Company (USA) are also reported to be interested in UB
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Campbell Soup is reportedly interested in acquiring United Biscuits, from its private equity owners. The group is financially better placed than its main UK rival, Premier Foods, for the deal. Also UB would bring a needed growth boost to Campbell, in categories in which it has enjoyed success recently in north America. But the group's business model and strategy appear to be elsewhere.

UB would boost growth in attractive categories ...Campbell defines itself as focused on 'healthy beverages, baked snacks and simple meals'. Within that, 67% of turnover is from sauces, soups and beverages, in the US and internationally.

Another 25% of Campbell's sales are generated by its baking and snacking division. That division booked the group's highest top-line growth rate in 2010, at 7%. It also delivered an EBITDA margin of nearly 20%; close to group average.

So, it makes financial sense to grow that part of Campbell. UB's portfolio would make a good fit, alongside Campbell's 'Pepperidge Farm' business. That brand covers breads and cookies, crackers and puff pastry.

... expanding geographic reachUB would both provide a higher weighting in biscuits and, because Pepperidge Farm is mostly a north American busines, it would add the UK, France, Holland and Belgium as significant new geographies for Campbell in those categories.

Balance sheet is strong enough ...From a financial perspective, Campbell could arguably pay the near US$ 4 bln in enterprise value that UB could be worth (see valuation), without issuing new shares or selling assets (see profile).

In that scenario, Campbell's net debt would rise to about x4,0 EBITDA, before taking into account UB's EBITDA contribution or synergies.

We have argued before that Campbell's main rival for UB in Europe, Premier Foods, would have to sell its Hovis bread business, to achieve such a net debt ratio pursuant to acquiring UB.

On the other hand The Kellogg Company, another potential bidder, has a balance sheet that's arguable as strong as Campbell's (see related origination).

... but M&A history not favourable ...On the negative side, Campbell's business model is to generate strong free cashflow, dividend growth and share repurchases. It hasn't made a significant acquisition in the last five years.

In fact the group has divested some non -core businesses, notably its 'Godiva' luxury chocolate brand, to Ulker of Turkey in 2007.

... and focus on emerging marketsIn addition, Campbell's stated international expansion strategy is focused on Russia and China, rather than on developed markets.

To underline that, the group sold its UK and Ireland culinary brands in 2006 to, ironically, Premier Foods. Would it make such a radical come-back into the UK market so soon ?

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Size (€ mln) 3.650
Sector biscuits and savoury snacks
Asset Quality global no.3 branded
Seller private equity
Buyer large plc
P/S 2,4
P/Ebitda 13,5
Type enterprise value estimate
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