Glenboden M & A Originations

Will Heinz acquire proximity ready foods player in Poland ?

Priority Rating priority rating 5
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Origination Status press reports, July 2011
Asset P.G.P.H. “U Jędrusia” Andrzej Krupiński, leading domestic chilled foods producer
Buyer HJ Heinz Polska S.A. (Poland), subsidiary of global foods group
Seller founder of U Jędrusia
Buyer Rationale expansion into chilled and frozen foods, boost to growth
Seller Rationale acceptable valuation, possibly over-extended with new factory
NBs letter of intent signed in July with exclusivity to end August
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At group level, Heinz is looking to boost growth in emerging markets, with Poland as an important geography. We look at Heinz Polska's competitive position, and assess whether this proposed bolt-on acquisition will help the company meet its goals.

Under pressure to accelerate growth ...Heinz's global strategy is for emerging market sales to grow at a double-digit rate, to reach 20% of group turnover in FY 2012. Heinz Polska is clearly underperforming that growth rate target (see profile).

The company is also being outpaced by its independent peers in the Polish food sector, that are taking advantage of the weak zloty in order to grow their export business to a new level.

By acquiring U Jędrusia, Heinz will increase its sales by 20% on day one, and grow its footprint in chilled and frozen ready foods - a new growth platform next to its strong ambient ready foods business in Poland.

... while staying focused on Pudliszki ...'Pudliszki' is one of Heinz's top six brands in Europe, and is ranked the no.1 'preferred' food brand in Poland. Although 'U Jędrusia' has old-Poland proximity to its credit, Heinz is likely to migrate its shelf-space to 'Pudliszki' over time.

In terms of manufacturing, Heinz is putting pressure on its European units to reduce the number of factories in operation, now standing at 23. U Jędrusia will add another, modern plant to the two that Heinz Polska already owns.

So Heinz undoubtedly will have a lot of work to do, to extract synergies in marketing and manufacturing with U Jędrusia, with the end -game being to focus both of these in Pudliszki.

... and to improve profitabilityThat need for synergies is underlined by the fact that Heinz Polska's EBITDA margin is well below the 17,3% booked in Q1 2012 by the group as a whole (see profile). That's despite being a leading player in its categories for 15 years.

The profitability of ready foods is questionable, compared with Heinz's other core areas - sauces and infant food. Maybe entering the infant food category in Poland would be a better strategic move for Heinz Polska than over-weighting itself in ready foods with U Jędrusia.

In this context, the acquisition needs to defend itself in valuation terms. With a rumoured price tag of 60 mln zloty, for a fast-growing business delivering 100 mln zloty in revenue, that might be the clincher; especially when Heinz Polska has spare cash at its disposal (see profile and valuation).

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THIS LEAD'S VALUATION
Size (€ mln) 15
Sector ready foods
Asset Quality Poland niche branded
Seller individuals
Buyer large plc
P/S 0,6
P/Ebitda 8,0
Type value estimate
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