Glenboden M & A Originations

Is Blackstone the best placed to acquire Iglo from Permira ?

Priority Rating priority rating 5
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Origination Status trade press reports, March 2012
Asset Birds Eye Iglo Group (UK /Germany), no.1 frozen foods producer in Europe
Buyer candidates include Blackstone and Lion Capital
Seller Permira, European private equity firm
Buyer Rationale greater geographic spread, leadership in Europe
Seller Rationale timing, exit after 5 year holding period
NBs Permira bought BEIG from Unilever in 2006 at an EBITDA multiple of x10
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Having held the investment since 2006, raised its profitability and made a bolt-on acquisition, Permira has apparently started the divestment process for Birds Eye Iglo (BEIG). We examine timing, valuation and likely buyers, on a rationale basis.

Timing ...Permira added Findus Italy to BEIG at the start of Q4 2010, to create a business with leading market positions in the UK, Germany, Benelux and Italy; overall it's Europe's no.1 with 8% market share.

It's also streamlined the business to raise the EBITDA margin from around 15% at the time of acquisition to about 20% now (see chart).

Given also acquisition momentum amongst the big private equity groups in frozen foods now, as well as a potential step-change in market growth especially in central Europe, the timing is good for sale.

... valuation ...Permira will doubtless look for an exit multiple of x10 EBITDA, the price it originally paid for BEIG; but we believe it's unlikely to achieve that level, having arguably 'maxed-out' its EBITDA margin at 20%.

Also, a lower multiple would be consistent with more recent precedents, including the group's own acquisition of Findus Italy, that reflect greater caution among LBO debt providers than in 2006.

That valuation might be bumped up if an Asian group enters the contest, as Lotte did to acquire Wedel in 2010. However, in general Asian buyers (ex -Japan) are known to refuse to pay top-dollar.

... buyersThe strongest acquisition rationale resides with private equity groups that already own frozen food assets, who can add value by increasing earnings quality through a broader geographic spread.

Blackstone, through Pinnacle Foods, acquired Birds Eye frozen foods in north America in 2009. There's common history - 'Birds Eye' is also BEIG's leading brand in the UK.

The deal has greater relevance however for Lion Capital. Through Findus it has the no.2 position in frozen in Europe, with leadership in complementary geographies to BEIG (Nordic region, France).

Negatives include anti-monopoly issues, and the fact that Findus is focused on fish (over 70% of sales), while BEIG is more evenly spread across fish, vegetables and poultry.

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THIS LEAD'S VALUATION
Size (€ mln) 2.500
Sector frozen foods
Asset Quality Europe no.1 branded
Seller private equity
Buyer private equity
P/S 1,5
P/Ebitda 8,0
Type enterprise value estimate
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