Glenboden M & A Originations

Does Emmi break its expansion deadlock by acquiring Onken ?

Priority Rating priority rating 4
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Origination Status proprietory origination, January 2011
Asset Emmi Group (Switzerland), no.1 domestic dairy player, with international presence
Buyer candidates include Lactalis, FrieslandCampina, Arla
Seller co-operative owners and public shareholders of Emmi
Buyer Rationale global dairy consolidation, no.1 position in Europe, Swiss cheese authenticity
Seller Rationale acceptable valuation, milk supply security
NBs In late 2010 Emmi acquired the 'Onken' brand from Dr. Oetker
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In early 2010 Glenboden argued that Emmi had the financial headroom to make a significant dairy acquisition in Europe, to break its expansion deadlock. But by acquiring Onken, they're still only inching ahead. Does European consolidation loom for them ?

Boost to German and UK presence ...Emmi, the no.1 dairy group in Switzerland by far, acquired the global rights to the 'Onken' dairy brand, from the private German company Dr. Oetker, in late 2010.

According to Emmi's CEO, Onken is no.1 player in the UK, and the no.3 in Germany, in the large yoghurt pots segment (450g and 500g). That's large in the sense of pots.

The group's CEO went on to say that Onken will 'lay the foundations for further growth with exported Swiss products.'

... another small acquisition ...That's the point about Emmi's international expansion strategy; they seem to focus on making small acquisitions, with the primary goal being to export 'Swissness', rather than to become genuinely international.

The group's M&A history is one of small purchases, since it went public in 2004. Kaiku in Spain, Roth Cheese in the US, Trentinalatte and Ambrosi in Italy, other small businesses in Germany and Belgium.

Onken is another small acquisition in Emmi's trajectory. That yoghurt brand generates sales of about CHF 75 million, adding only 3% to Emmi's global annual revenues.

... headroom for something big ...Emmi's strategy is for international sales to constitute 50% of its total. But in practice, the proportion has inched along at 25 -30% of sales, over the last five years (see chart).

In financial terms, the group has the headroom, as we've argued for some time, to make a significant, breakthrough dairy acquisition in Europe.

In H1 2010, Emmi maintained an EBITDA margin of about 8%, which isn't bad for a portfolio heavily weighted in cheese, butter and white products. Moreover its net debt to EBITDA ratio gives headroom for a significant acquisition.

... consolidation alternativeIn hard money terms, we believe that Emmi's sales revenues (see chart), and net debt at about x2 EBITDA, mean that it could afford an acquisition far bigger than the incremental Onken.

The fact that it hasn't made such a move, since going public in 2004, and has been quite stagnant in sales terms overall, suggest it's more of a target than a buyer on the European big dairy level (see chart).

In terms of acquiror candidates, the clear contenders are FrieslandCampina out of Holland, and Arla out of Scandinavia. Both of them are fellow co-operatives, which makes a deal easier (Emmi is still 60% owned by the ZMP).

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Size (€ mln) 2.000
Sector dairy products
Asset Quality Swiss no.1 branded
Seller large co-operative
Buyer large co-operative
P/S 0,95
P/Ebitda 12,5
Type value estimate
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