Glenboden M & A Originations

Unilever's strategic growth supported by slick M&A in - outs

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Origination Status buyer announcement, October 2011
Asset OJSC Concern "Kalina" (Russia), no.1 domestic independent personal care player
Buyer Unilever plc (UK /Holland), multinational FMCG group
Seller founders and public shareholders of Concern Kalina
Buyer Rationale Russia market leadership in skin- and hair-care segments
Seller Rationale attractive valuation
NBs two weeks later Unilever announced sale of Culver Specialty Brands division in north America for € 230 mln
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Unilever's ability to buy a high-growth BRIC business, then sell a high margin, mature north American business, both in the same month, illustrates the power of its M&A function as a key driver of its strategic development, alongside its famous NPD.

In with the good ...Concern Kalina is an independent, fast-growing leader in Russia's personal care market, claiming item market shares of 30,4% in the face -care segment, 35,6% in body- and hands -care, 10,9% in hair -care, 7,7% in toothpastes and 45,6% in mouth rinses at the end of 2010, according to ACNielsen.

This acquisition is consistent with Unilever's strategy of increasing its weighting in emerging markets. It also helps to re-balance personal care in the group's portfolio (see chart), growing from 20% to over 30% of group sales in 10 years, according to Unilever's CEO.

At a pre-synergy proforma EV /EBITDA multiple of about 12,0 the valuation reflects a growth rate of 9% in H1 2011. However the value accorded to Karina's brands should be discounted given a likely migration strategy to Unilever's global personal care brands (Dove etc.)

... out with the less-good but highly-valued ...Two weeks after the Kalina deal, Unilever announced the disposal of its Culver Specialty Brands division, to B&G Foods. That business includes non-core brands which Unilever inherited when it acquired the Albert Culver group in 2010.

The portfolio includes five salt-free seasoning blends, branded flavored sprinkles, branded sugar substitute, branded baking spray and anti-static spray brands in the US and Canada, established in the years 1968 - 1983

Following precedents like Lawry's sauces and Boursin cheese (2008), Unilever managed to sell the Culver portfolio on an incremental EBITDA basis - for US$ 325 million in cash, equivalent to about x10 EBITDA forecast FY 2012 - when its sales revenue was only US$ 90 mln in FY 2011. That's a fine achievement.

... true to strategic trajectoryFor some time it's clear that Unilever has been exiting businesses with high materials’ costs (e.g. divestment of Igloo and Bird’s Eye frozen foods brands in 2006, edible oils side of Bertolli in 2008); also brands that aren’t scalable from its point of view (e.g. Lawry’s, Boursin, Culver Specialty).

Its acquisitions have been focused on both emerging markets and, more recently, on its non -food FMCG portfolio. Witness the purchase of Sara Lee's body-care and European detergents business in 2009, and now Concern Kalina in Russia.

We ask whether the emphasis on non-food FMCG, mainly personal care, derives from Unilever's priority of brand concentration, which arguably works best in non-food categories. In 2010 the group's top 12 brands all had sales of more than €1 billion, and its top 20 brands accounted for 70% of total sales.

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THIS LEAD'S VALUATION
Size (€ mln) 600
Sector personal care
Asset Quality no.1 Russia independent
Seller mid-cap plc
Buyer large plc
P/S 2,0
P/Ebitda 11,7
Type enterprise value
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