Glenboden M & A Originations

What next for Grupo Bimbo after Sara Lee NAFB deal ?

Priority Rating priority rating 2
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Origination Status proprietory origination, December 2010
Asset Sara Lee’s International Bakery division (western Europe)
Buyer candidates include Aryzta, Grupo Bimbo
Seller Sara Lee Corp. (USA), international consumer products group
Buyer Rationale new geographies, brands
Seller Rationale sale of businesses with low operating profit contribution
NBs Sara Lee sold its North American Fresh Bakery business to Grupo Bimbo in November 2010
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Earlier we asked what the sale of its North American Fresh Bakery business says about Sara Lee. Here we look at that deal from Grupo Bimbo's perspective, and ask if purchasing Sara Lee's International Bakery division is next on Bimbo's shopping list.

NAFB both a milestone and a challenge for Bimbo ...The purchase of Sara Lee's NAFB business adds US$ 2 bln in turnover to Bimbo, representing a >20% increase to its pro forma 2010 top line over 2009.

It also takes the US market to over 50% of the group's total sales, which is a significant milestone for a Mexican company looking north (see chart).

But because of NAFB's low profitability (5% EBITDA margin), the deal has added less than 10% to Bimbo's EBITDA. That needs to be tackled by the group's challenging synergy targets (US$ 150 - 200 mln p.a. by 2013).

... still standing for more deals ...In spite of the hit made by NAFB on Bimbo's EBITDA margin, and thanks to the keen valuation of the business, the group's net debt ratio comes in at a healthy x2,6 EBITDA post -acquisition.

Combined with Bimbo's aggressive M&A history, notably the purchase of Dunedin from Weston Foods in the US 2008, which added 40% to total sales, we believe the group has momentum for more acquisitions in the near future.

But will they venture beyond the Americas now ?

... IB as the next target ...We've argued that Sara Lee's International Bakery business, 90% focused on western Europe, is a good divestment candidate by the group's criteria of under-performance and weak competitive prospects stand-alone.

IB is also the last 'low-hanging' asset for Sara Lee to sell, given its small operating contribution (see related origination), similar decline to that of NAFB, and the fact that it constitutes less than 10% of group turnover.

From Bimbo's perspective, the acquisition of IB would give it the market leading position in packaged bread and pastries in Iberia, a significant position in France, and a foothold in Europe.

The added frisson is that the Spanish version of the 'Bimbo' brand, originally owned by Grupo Bimbo but since 1978 wholly separate, would be 'returning home' to Mexican ownership if that deal happened.

... Aryzta distracted elsewhereIn theory a keen competitor for Bimbo to acquire IB is Aryzta, the Irish -Swiss 'European champion' in bakery consolidation, that claims to be the global leader in specialty baked products.

That group has a voracious M&A appetite, having acquired a string of companies in Europe and north America since its formation in 2007. But it looks currently like Aryzta is distracted, strategically and financially, by other deals.

In 2010 it bought Fresh Start bakeries in California, and is in the process of acquiring the 50% of Maidstone Bakeries in Canada, owned by its JV partner in that company Tim Hortons, for CAD$ 475 mln.

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THIS LEAD'S VALUATION
Size (€ mln) 300
Sector bakery products
Asset Quality Iberia leader branded
Seller large plc
Buyer large plc
P/S 0,5
P/Ebitda 9,0
Type value estimate
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