Glenboden M & A Originations

Is Intersnack a realistic buyer of United Biscuits' salty snacks ?

Priority Rating priority rating 4
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Origination Status press reports, May 2012
Asset salty snacks division of United Biscuits Topco Ltd (UK), no.2 domestic player in bagged segment
Buyer rumoured candidates include Kellogg's, Intersnack
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 Credit Suisse mandated to advise on the divestment, possibly by September
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Undoubtedly Intersnack would like to acquire UB's salty snacks division - the group is a serial acquiror of brands in Europe. Whether they have the business culture or the financial means to pay the necessary hefty price is quite a different question.

Potential strategic buyers ....Having owned UB since 2006, and failing to sell the group to China's Bright Foods in 2010, PAI and Blackstone have decided to separate the salty snacks side, that delivers about one-third of total sales.

Over 85% of UB's sales are branded. That high weighting, plus market trends and competitor dynamics in the UK salty snacks market, make it probable we think that its crisps side will go to a strategic buyer.

According to recent trade press reports, the front-runners are Kellogg's, in the process of completing its acquisition of Pringles, and Intersnack Group, a closely-held German entity. Having met the latter on an assignment, we think it's an unlikely competitor.

... origins in beets and potatoes ...Intersnack it part of a German sugar giant, whose identity is not publicly know. Upstream synergies in sourcing beets and potatoes are how the group started in the potato chip business over 50 years ago.

Intersnack is now a diverified snacks business with potato chip, extruded snack, bakery and nuts divisions. It operates around 30 production units throughout Europe, which makes for a lot of complexity.

That complexity is compounded by the number of brands that the group markets - around 20 in total; some organically developed and others acquired, with yet more being targeted e.g. in Poland.

... not a high-margin modelAlthough its annual sales revenue totals about €1,5 bln, making it much larger than UB's salty snacks unit, Internack is unlikely to have a comparable EBITDA margin, given the lack of streamlining in its business model.

That makes it very challenging for the group to raise sufficient financing to acquire a 'top-dollar' asset like UB's salty snacks (see chart and valuation). Intersnack is a very different animal to Kellogg's.

The future for Intersnack is to consolidate its operations in Europe, and focus on key brands like Chio and Ultje. Another option is an increased weighting in private label, which already constitues 50% of the group's revenues.

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Size (€ mln) 750
Sector bagged salty snacks
Asset Quality UK no.2 branded
Seller private equity
Buyer large plc
P/S 1,5
P/Ebitda 8,5
Type value estimate
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