Glenboden M & A Originations

Is Wessanen an attractive takeover candidate in organic foods?

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Origination Status proprietory origination, June 2012
Asset Royal Wessanen nv (Holland), European organic food producer
Buyer candidates include ABF, Campbell Soup, Raisio
Seller shareholders of Wessanen
Buyer Rationale 'new frontier' growth categories (gluten-free, dairy alternative, organic)
Seller Rationale financial problems as group, acceptable valuation
NBs Wessanen claims leadership in organic foods in several high-value European markets
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Wessanen has been a 'walking -wounded' public foods group, at least since it sold its private label RTE cereals unit in 2007. Its chronic under-performance cause it to possibly be a well-priced acquisition candidate for groups eager to expand in ambient -shelf organic foods in Europe. We suggest some buyers.

Wessanen’s flawed business model …Through successive divestments and organic declines, Wessanen’s sales revenue has halved in the last five years (see profile). In Q1 2012 the group suffered a further fall in sales.

Ostensibly Wessanen is profitable (see chart). If however one was to take into account exceptional items and impairments, the group’s EBITDA was slightly negative in 2011; profitability was also down in Q1 2012.

Despite the management –speak about measures to improve performance, Wessanen is chronically in decline and under –delivering, being reduced now to a focus on organic foods (with ethnic foods dropped since 2008).

…. attractive takeover candidate …Two-thirds of Wessanen’s sales are of (mostly ambient) organic foods, such as biscuits, rice-cakes, teas and spreads. According to the group, the European organic food market grew by 6% in 2011.

Historically handicapped by a dependence on health food stores, Wessanen has grown the share of (more –profitable) grocery channel sales of organic foods, to around 50% of the total in 2011.

In terms of brands, the group boasts the no.1 organic foods position in the grocery segment in Holland (‘Zonnatura’) and France (‘Bjorg’), as well as strong positions in certain categories in the UK (‘Kallo’, ‘Whole Earth’).

… some potential buyersAssuming a 30% control premium over Wessanen’s y/e 2011 enterprise value, our takeover valuation of the group as a whole appears quite attractive to a strategic buyer (see valuation).

There’s also the low-hanging potential of non –core divestments. Wessanen’s frozen snacks business could be sold to a private equity group now consolidating frozen foods in Europe, like Blackstone; the sale process for ABC in the US is apparently already in motion.

The core, organic foods business could be more successfully commercialized in mainstream grocery channels by ABF, who’s already strong in ethnic foods. Other possible buyers include Campbell Soup, and Raisio of Finland.

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THIS LEAD'S VALUATION
Size (€ mln) 320
Sector organic food
Asset Quality Europe leader branded
Seller mid-cap plc
Buyer large plc
P/S 0,5
P/Ebitda 4,2
Type enterprise value estimate
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