Glenboden M & A Originations

Did Greencore overpay for Uniq in UK chilled foods ?

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Origination Status acquisition completed, September 2011
Asset Uniq plc (UK), domestic chilled ready foods producer
Buyer Greencore Group plc (Ireland), international convenience foods producer
Seller public shareholders of Uniq
Buyer Rationale greater scale in overlapping ready foods categories
Seller Rationale acceptable valuation
NBs Greencore has been courting Uniq since at least 2009
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The CEO of a rival bidder for Uniq, Samworth Brothers, said that Greencore paid a 'silly price' for the business. Whilst the deal delivers some positives for the group, we believe the valuation was quite high; moreover there are risks in integrating a troubled company like Uniq.

Several deal positives ...Uniq holds market leading positions in the UK in chilled desserts and food to go (salads, sandwiches), made under private label and co-packing agreements.

For Greencore, the Uniq deal brings more scale in overlapping convenience food categories, a complementary customer base amongst UK retail multiples, and higher portfolio concentration in food to go, cakes and desserts (over 50% of total sales).

The deal also allows Greencore to increase its turnover by 33%, to exceed 1 bln GBP (continuing operations), whilst keeping its net debt ratio below x3,0 EBITDA after total consideration and transaction costs.

... overvalued by non-branded standardsThe price paid by Greencore for Uniq (see valuation) is roughly in line with e.g. the UK food & beverages sector average price /ebitda of x8,0 in YTD 2011, published in Oghma Partners' M&A Review & Outlook (May 2011).

On the other hand, e.g. the European Investment Fund calculates that in 2010 the average EBITDA entry multiple paid by private equity investors was around x6,0 (not weighted for deal size).

In our view the price paid by Greencore was relatively high, given that the acquired rump of Uniq is a non-branded asset, reliant upon contracts with customers and not the 'pull' of the consumer.

Greencore explains that post -synergy the EV /EBITDA multiple drops to x5,0. However, valuations are usually assessed at the point of transaction completion, at most on the basis of a current year EBITDA forecast.

... strategic risk of a 'falling knife'Moreover there may be strategic risks in integrating a company that's been in terminal decline. Uniq has whitled itself down, by selling business units, from a 900 mln GBP turnover group in 2005, to a 300 mln GBP entity five years later.

Along the way, Uniq has divested all of its continental Europe operations, including France, Holland, Germany and Poland; along with strong brands like 'St. Hubert' in spreads, 'Marie' in snacks and 'Lisner' in fish specialties.

On top of that, Uniq's turnover was flat in H1 2011, owing to a decline in its desserts business caused by withdrawal from certain segments, which nullified growth in food to go sales.

A month before the Greencore deal completion, Uniq announced the closure of its Everyday desserts business unit at Minsterley, with attendant write-offs. That follows a debt - equity swap to remove a 400 mln GBP pension deficit. That's a lot of financial issues.

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THIS LEAD'S VALUATION
Size (€ mln) 140
Sector chilled ready foods
Asset Quality UK leader unbranded
Seller mid-cap plc
Buyer large plc
P/S 0,4
P/Ebitda 8,6
Type enterprise value
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