Glenboden M & A Originations

Lactalis latest buy in Croatian highlights its acquisition push in chilled dairy across Europe

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Origination Status Zagreb Stock Exchange announcement of group acquisition, March 2007;
Asset Dukat Mlijecna Industrija d.d. (Croatia), no.1 domestic chilled dairy producer;
Buyer Groupe Lactalis (France), no.1 European cheese producer;
Seller shareholders of Dukat including main shareholder Luka Rajic;
Buyer Rationale part of European expansion strategy in chilled dairy after JV with Nestle in 2005;
Seller Rationale exit seven years after merger that created Dukat;
NBs Lactalis had been in discussions with Dukat for some time about a strategic alliance.
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Lactalis deserves a place in the A-list of global French consumer products companies, alongside more famous names like L’Oreal and Danone. The Group has achieved spectacular acquisitions in the last few years. In 2005, it created a 60:40 joint-venture with Nestle, combining the two chilled dairy businesses in Europe. Then, in 2006 Lactalis acquired Italy’s Galbani, Italy’s biggest exporter of that country’s ambassador cheeses mozzarella, mascarpone and ricotta. These now sit alongside French cheese ambassador brands, President and Societe, in Lactalis’ portfolio. The group is now continuing its M&A momentum with a string of smaller deals in central and eastern Europe, with more to come.

Established in 1933, Lactalis is still in the hands of the Besnier family and has remained private. Its sales growth rate is very impressive, having reached 20% in value terms, to reach est. € 7 bln, in 2006.

Now, nearly half of Lactalis’ sales are outside France, and this proportion is growing fast. Its star brands internationally, President for camembert and Societe for rocquefort, are ambassadors for France just as surely as Carrefour, Danone or L’Oreal are, even if on a smaller scale.

On the face of it, the valuation looks cheap, at roughly x1,0 P/S and x10,0 P /EBITDA, given Dukat’s market position and the fact that Croatia is nearly in the EU. Plus the fact that Dukat has been quick to exploit growth areas like PET bottled drinking yoghurt.

On the other hand, the Group’s sales value fell by 3,5% in 2006, and operating margin is only 7% of sales which reflects the weight of low-margin retail milk in Dukat’s sales.

Finally, the Group is the result of a merger of four smaller dairies in 1999, so there may be some restructuring left to do. Overall, the price can be seen as fair; certainly consistent with the Lactalis mantra of never over-paying for an acquisition.

This acquisition, although Croatia is a small country, is strategically significant because it shows Lactalis’ evolution into a company with the appetite for buying market leaders in emerging European countries, even ones that don’t produce traditional cheese.

They wouldn’t have done something like this five or ten years ago; clearly their JV with Nestle in chilled dairy was a transformational deal – Lactalis is perhaps becoming one of the full-range dairy powerhouses of Europe.

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THIS LEAD'S VALUATION
Size (€ mln) 285
Sector chilled dairy
Asset Quality Croatia no.1 branded
Seller mid-cap plc
Buyer large corporate
P/S 1,1
P/Ebitda 10,0
Type enterprise value
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