Glenboden M & A Originations

Dairy Crest makes breakthrough into European branded with St. Hubert buy

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Origination Status company acquisition voted by buyer’s EGM in January 2007;
Asset St Hubert SAS, no.2 in French spreads market (32% share);
Buyer Dairy Crest Group plc (UK), leading chilled dairy company in UK;
Seller Uniq plc (UK), European chilled and frozen foods producer;
Buyer Rationale increase branded share in total sales, synergies with UK spreads production, entry into continental Europe;
Seller Rationale portfolio refocusing on areas with restructuring potential, debt reduction;
NBs St Hubert is also market leader in the small Italian spreads market, through ‘Vallee’ brand.
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Interesting that Dairy Crest should take such a bold step into the French market, when hitherto it’s

been 100% UK –focused. Especially when the trend in the UK foods business is generally in the opposite direction, towards greater parochialism. On the other hand, once they’d taken the decision to expand ‘onto the Continent’, the remaining rationale is very compelling, especially re-weighting their portfolio for greater branded product sales, especially in spreads. Dairy Crest also sold its UK private label cheese business recently, as part of this strategy to improve the ‘quality’ of its earnings by shifting more into branded. Expect more cheese divestments by Dairy Crest to come, as well as acquisitions of other spreads brands in Europe.

St Hubert has quite an extraordinary operating margin, at 30% of sales, even by margarine standards. As a consequence the valuation is, from a sales multiple perspective, way above the range; but from an EBITDA multiple it’s consistent with the orthodoxy of ’10 times plus’, for branded businesses.

What’s more, St Hubert’s modest growth rate (3% in 2006) hides far stronger growth in the attractive health spreads segment (new omega-3 and cholesterol-reduction varieties), where St Hubert has a 35% market share in France - this is hidden in the P/S multiple.

It could be said that Uniq has now sold the ‘jewel in its crown’, since most of the rest of its portfolio is currently loss-making (chilled ready meals, salads, sandwiches etc). On the face of it, that suggests that they’re in trouble.

On the other hand maybe they’re taking an ‘active private equity’ approach; selling an asset when its value has peaked, and investing the money to unlock the value of other businesses. But that’s a risky strategy for any public company and Uniq is no exception.

But is there also an underlying withdrawal, by Uniq, into its UK operations? Probably not, since its continued continental Europe operations (mainly France, Germany, Holland, Poland) will still constitute over 50% of turnover after this divestment (and after that of its Belgian salads business).

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THIS LEAD'S VALUATION
Size (€ mln) 370
Sector chilled spreads
Asset Quality France no.2 branded
Seller large plc
Buyer mid-cap plc
P/S 3,9
P/Ebitda 11,1
Type total consideration
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