Glenboden M & A Originations

Is Kellogg's best placed to buy United Biscuits' salty snacks ?

Priority Rating priority rating 4
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Origination Status trade press reports, March 2012
Asset salty snacks division of United Biscuits Topco Ltd (UK), no.2 domestic player
Buyer candidates include Campbell Soups, Kelloggs, Kraft, Bright Foods
Seller Blackstone Group and PAI Partners, private equity firms
Buyer Rationale market share and brands in high-value UK market
Seller Rationale exit after five year holding period
NBs attempt to sell UB as a whole in 2010 failed
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The private equity owners of United Biscuits have decided to split the business' biscuits and salty snacks divisions, apparently with a view to selling the latter. We examine the rationale, valuation and potential acquirers.

Rationale for split ...Having owned UB since 2006, and failing to agree terms for selling the business as a whole to China's Bright Foods in 2010, PAI and Blackstone have decided to separate the salty snacks side, accounting for about one-third of total sales.

That's a sensible move; the UK is the largest crisps and salty snacks market in Europe and, according to Mintel, it grew in value by 24% in 2005-10, with a premiumisation trend.

UB is the no.2 player in the bagged salty snacks segment, with iconic brands including 'Hula-Hoops' and 'Twiglets'. Releasing it from the biscuits side of UB makes it attractive to strategic buyers focused on crisps - not biscuits.

... potential buyers ...Over 85% of UB's sales are branded, with the remainder private label. That high weighting, plus market trends and competitor dynamics make it probable we think that its crisps side will go to a strategic buyer not private equity.

The obvious contender is Kellogg's, after its acquisition of Pringles in 2012 (ongoing) from Procter & Gamble. That business has under 10% market share in the UK and a limited portfolio.

UB's salty snacks division would provide that group with critical mass, and arguably the pathway to a strong no.2 position, in a UK crisps market dominated by Pepsico's Walkers (50% share).

... valuationWe believe that UB is a more valuable asset than, say Birds Eye Iglo, which is also being sold this year. Inter alia, with lower materials costs salty snacks are inherently more profitable than frozen foods.

So, we believe the exit multiple will be higher (see valuation - 33% of total UB), but not very high since any strategic investor buying an asset from private equity is likely to factor significant marketing investment into their business plan.

A bidding war might raise the price, but we think it's unlikely that eg. Kraft will compete with Kellogg's, given the synergies that the latter can factor into their offer. Bright Foods might not re-appear after its abrupt withdrawal last time.

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THIS LEAD'S VALUATION
Size (€ mln) 900
Sector bagged salty snacks
Asset Quality UK no.2 branded
Seller private equity
Buyer large plc
P/S 1,8
P/Ebitda 10,0
Type value estimate
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