Glenboden M & A Originations

Could Aryzta stretch to acquiring CSM Bakery Supplies ?

Priority Rating priority rating 5
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Origination Status seller announcement of intention, May 2012
Asset CSM Bakery Supplies (Holland), leading ingredients and frozen bakery producer in Europe and north America
Buyer candidates include Aryzta
Seller CSM nv (Holland), pure-play bio-ingredients group (post -divestment)
Buyer Rationale critical mass and synergies in Europe and NA bakery
Seller Rationale focus on bio-ingredients and funding its x2 expansion
NBs divestment completion planned for early 2013
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CSM plans to take the dramatic downsizing step of divesting its bakery division, which constitutes nearly 80% of group sales. There are negative precedents amongst food groups making such bold 'transformations'. Nonetheless, we examine whether Aryzta could financially stretch itself enough to fund that acquisition.

Two steps back for one forward ...Using McKinsey logic, CSM has decided that its (frozen) bakery services division needs greater scale for stronger pricing power vis-a-vis its retail multiple and foodservice chain customers, who are growing at the expense of artisinal bakery.

So, the group has decided to sell this division to an entity that's consolidating the bakery industry, and focus instead on its smaller but more profitable and prospectful bio-based ingredients and chemicals businesses (Purac and Caravan).

If that strategy is predicated on making bolt-on acquisitions, then it's quite a gamble. Groups such as Uniq and more recently Raisio have learnt how difficult it is to deliver on such business transformation strategies; but anyway.

... Aryzta as potential buyer ...CSM BS isn't the ideal acquisition candidate for Aryzta; its main acquisition focus now being emerging markets, when 95% of CSM BS's sales are in NA and Europe. Also, the product mixes of the two groups differ.

On the other hand, the combined operations will enjoy major synergies through their overlapping geographies and sales channels - both are heavily weighted in retail and foodservice, and roughly evenly split between NA and Europe.

Besides which, Aryzta has an M&A -driven business model, having made eight acquisitions in the decade up to 2010, all in NA and Europe (including as predecessor companies IAWS and Hiestand). CSM BS fits that portfolio squarely.

... funding challengeTaking the sale of Sara Lee's NA Fresh Bakery division to Grupo Bimbo in 2010 as comparator, we estimate a valuation north of € 1 bln for CSM BS (see valuation).

In H1 2012, Aryzta Food Group booked a net debt ratio of x2,1 based on 12M EBITDA of € 450 mln. The group's policy is to keep net debt below x3 EBITDA in order to maintain its investment grade; that doesn't provide much headroom.

In broad-brush terms, and even including CSM BS in the Y1 EBITDA of the combined entity, we estimate that post-deal Aryzta's net debt would climb to over x3,5 EBITDA.

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Size (€ mln) 1.150
Sector bakery
Asset Quality segment leader EU and NA
Seller large plc
Buyer large plc
P/S 0,5
P/Ebitda 9,0
Type value estimate
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