Glenboden M & A Originations

Newlat appears above the parapet with Birkel deal

Priority Rating priority rating 4
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Origination Status seller announcement, December 2013
Asset 'Birkel' and '3Glocken', leading pasta brands in Germany
Buyer Newlat Group SA (Italy), top 10 food producer in Italy
Seller Ebro Foods S.A. (Spain), leading domestic rice and pasta producer
Buyer Rationale stronger presence in German pasta market, migration to 'Buitoni' brand
Seller Rationale divestment of low-margin business
NBs Newlat's group sales are 70% branded and 30% private label
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Welcome to Newlat as a new player on the European food industry M&A arena. Hitherto focused on growth by acquisitions in Italy, it has now made its long-awaited step beyond its borders, by buying the legacy 'Birkel' brand in Germany. What kind of company is Newlat, and where might it acquire next ?

Possibly opportunistic acquisition ...At Glenboden we worked with Newlat in 2011, on a pasta deal in Poland that didn't materialise owing to valuation differences. We know that that experience what shrewd negotiators they are.

The headline valuation is € 30 mln including a five-year earn out of 50% of the EBITDA generated by the brands. Ebro claim the earn-out will add another € 7,5 mln.

However in practice Newlat will surely decide what amount of G&A and selling costs to allocate to the brands' sales going forward, which creates challenges for Ebro in 'capturing' that additional value.

Anyway Ebro shouldn't be crying too much - in 2007 they bought Birkel for a total amount including debt of € 30 mln, when the business had sales revenue of € 90 mln.

... strategic challenge for branded pasta ...However Newlat is also taking a significant risk with this acquisition, which is presumably why there is a significant earn-out element in the valuation.

The German food market is one of the most dominated by store brands, as well as discount retailers, in Europe. On top of that, dry pasta is a commodity business where store brands can thrive, to the detriment of the producer brands segment.

In this context it will be interesting to see if Newlat decides to milk the 'Birkel' and '3Glocken' brands, and to migrate the consumer to its core 'Buitoni' brand, to enjoy scale economies in marketing costs. The group is, after all, specialised in Italian brands.

... more acquisitions in the pipeline ?Newlat's business is focused in three areas: pasta, dairy products and long-life breads (or bread substitutes). We know from working with them, that the third category is where they see greatest potential.

We also remember that they were only interested in companies with over € 50 mln in sales revenue, which limits the potential for additional transactions.

Also, the group is not a huge player - in 2010 they had sales revenue of € 400 mln. So, Newlat may need some time to digest the Birkel business, before embarking on the next acquisition.

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THIS LEAD'S VALUATION
Size (€ mln) 30
Sector pasta
Asset Quality Germany leader branded
Seller large public company
Buyer family-owned group
P/S n.a.
P/Ebitda n.a.
Type price estimate including earn-out
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