Glenboden M & A Originations

McCormick pays full price for Poland's Kamis

Priority Rating priority rating 5
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Origination Status acquiror announcement, June 2011
Asset Kamis S.A. (Poland), domestic no.1 in spices, seasonings and mustard
Buyer McCormick & Company Inc. (USA), global leader in flavour enhancers
Seller Robert KamiƄski, founder of Kamis
Buyer Rationale brand, market share in Poland and platform in CEE region
Seller Rationale attractive valuation, timing, focus on nascent tea business
NBs Kamis has est. 45% market share in spices and seasonings, and 30% in mustards, in Poland
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Kamis has been on the shopping list of multinationals since the 1990s, and its yielding to McCormick has been expected for several years. We comment on the buyer's rationale, the competitive context for Kamis in Poland, and the valuation on a comparative basis.

Strong buyer rationale ...Kamis has brand leadership and 45% market share in spices and seasonings, as well as 30% in mustards, plus a sales growth rate in the mid-single digit range, in the large Polish market. It also has a strong regional presence, with distribution subsidiaries in Romania, Russia and Ukraine.

Kamis is an obvious top-priority target for McCormick, for market share in Poland and a platform in CEE, as it extends its flavour enhancer leadership, notably under the Ducros brand in France and Schwartz in the UK, beyond western Europe.

Alongside a recent JV in Turkey and the acquisition of Kohinoor in India, buying Kamis also helps McCormick with its sales expansion in emerging markets, forecast to exceed 12% of group revenues in 2012.

... limited acquiror competition ...Apparently, in the final round of the tender to acquire Kamis, McCormick only had one rival, the private equity firm Advent International. That's maybe surprising given the target's market position and M&A history.

Even in the mid-90s, when only a five year-old company, Kamis was courted by Bestfoods (now part of Unilever). Today, Unilever continues to be a competitor of Kamis especially in dry seasonings, as does Nestle in wet seasonings, broadly speaking. Apparently they only sniffed at the purchase of Kamis.

Perhaps that's due to the evolution of those two groups in the direction of focusing on ever-fewer brands; Kamis would have cannibalised either Knorr or Winiary, in the respective portfolios of Unilever and Nestle.

... fully but not over-pricedReflecting the fact that on the one hand Kamis is a very attractive branded asset, but on the other hand there was limited competition amongst big strategic investors for its acquisition, we can say that, at an EBITDA multiple of between 12 and 13 (surely 2011F), the company was fully priced but not over-priced.

In M&A in FMCG in Poland now, a big story is how to value private label earnings, because companies have an ever-higher weighting of sales in that channel, which is growing in double-digits especially in the discount segment.

Of course the quality of private label earnings is lower than that of own brand earnings, as the former is based only on contracts while the latter on consumer equity. A valuation rule of thumb is x6 -7 EBITDA for a PL business, and twice that for a strong brand. In that case McCormick paid the going rate for Kamis.

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THIS LEAD'S VALUATION
Size (€ mln) 190
Sector seasonings
Asset Quality Poland no.1 branded
Seller mid-sized private
Buyer large plc
P/S 2,8
P/Ebitda 12,5
Type total consideration
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