Glenboden M & A Originations

Some acquisition targets for Nomad in US frozen foods

Priority Rating priority rating 5
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Origination Status buyer announcement of intent, August 2015
Asset significant branded frozen food assets in the US market
Buyer Nomad Holdings (USA), acquisition vehicle established in 2014
Seller candidates include Pinnacle Foods, certain ConAgra brands, Schwan
Buyer Rationale adding value through cost restructuring
Seller Rationale acceptable valuation, financial pressures, succession issues
NBs earlier in 2015 Nomad acquired Iglo and Findus frozen foods brands in Europe
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Earlier this month, Nomad Foods confirmed that it's looking to acquire 'neglected frozen foods brands' in the US market. There is a whole string of potential targets for Nomad; the key question is whether they can succeed in buying something that's genuinely been 'neglected', and not overpay for an asset in this environment.

Rumoured candidates not quite right ...Most frozen foods brands in the US are well -managed, at least in financial terms, in the hands of private equity and corporate owners. So, it's likely that Nomad will end up paying a high price for a 'cash-cow' asset, especially given the current valuation environment.

Nomad is rumoured to be a bidder for the 'Green Giant' canned and frozen vegetable brand, which General Mills is reported to be looking to sell. However given that brand's relatively narrow focus, on vegetables, the clear match for it would be Bonduelle, who's also focused on vegetables and on a growth-through-acquisitions trajectory in the US.

The other target identified by analysts is Bellisio Foods. However that business is relatively small - its MBO in 2011 was backed by a PE firm, Centre Partners, that invests in mid-cap companies with revenues up to US$ 500 mln. Also, Bellisio looks like a business that's on a step growth curve, having made several acquisitions and alliances since 2011, and so not yet ready for sale.

... Pinnacle the obvious match ...A more obvious acquisition target for Nomad is Pinnacle Foods, with revenues of US$ 2,5 bln and a stable of brands that have 85% household penetration. Controlled until recently by PE firm Blackstone, since 2007, that's a business in a similar mould as Iglo and Findus, which Nomad also bought after long-term PE ownership.

As always with PE backed companies, any M&A deal for Pinnacle would be purely a numbers game. Here things look difficult, as Pinnacle has a very high level of indebtedness (see profile). What's more, if Nomad paid the same EBITDA multiple as it did for Iglo (see valuation), then Pinnacle's enterprise value would be significantly lower than the group's current market capitalisation of around US$ 5 bln.

One possible solution would be for management to sell only the frozen half of Pinnacle to Nomad, led by the 'Bird's Eye' brand, and use the proceeds to pay down the group's debt mountain and build shareholder value through the remaining Duncan Hines Grocery and Specialty Foods segments.

... or corporate brand divestment ...Moving away from private equity, another option for Nomad would be to approach one or more of the struggling food majors, and seek to buy individual frozen foods brands from them, presumably with related production facilities and sales capabilities. In other words, to find another General Mills with another 'Green Giant'.

One such candidate that's been in the news recently is ConAgra. That group has a net debt multiple of EBITDA that's almost as high as Pinnacle's. Its current strategy of selling off its private brands division may yield very little cash, given that division's poor financial performance, and so ConAgra may need to resort to selling one or more of its attractive brands instead or in addition.

In such a case, divestment candidates at ConAgra might include 'Bertolli' Italian meals and soups, or 'Banquet' chicken products, or 'Alexia' in the very defensible potato products category. The sale of one or more such brands could raise enough cash for ConAgra to meet its target of repaying US$ 1 bln of debt this year.

... or privately -held jewelThe real prize for Nomad however may not lie in acquiring a financially well -managed brand or portfolio, from private equity or a public corporation, but rather in seeking out a privately -held jewel that meets its definition of 'neglected'.

One such target could be Schwan Foods, which has well-established brands in the attractive frozen desserts and pizza categories, as well as a sales & distribution model with one of the largest direct-to-home units in the US. The group is currently controlled by the second generation of the Schwan family.

Operating below the radar from an M&A perspective, financial information on the group is not readily available. However it appears that annual sales are in long term decline, down to US$ 3,2 bln in 2014. Whether or not the Schwan's founder's children would or could sell the business is anyone's guess; but let's not forget that favourite M&A maxim - few family businesses survive as such beyond the second generation.

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THIS LEAD'S VALUATION
Size (€ mln) 3 275
Sector frozen and ambient grocery
Asset Quality US no.1 or 2 branded
Seller private equity
Buyer acquisition vehicle
P/S 1,45
P/Ebitda 8,5
Type enterprise value estimate
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