Glenboden M & A Originations

Bel unveils it’s acquisition drive in eastern Europe with Shostka buy

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Origination Status agreement signed to acquire 100% of assets, April 2008;
Asset Shostka (Uraine), major domestic dairy and brand leader in hard cheese;
Buyer Le Groupe Bel (France), global no.1 producer of branded portioned cheese;
Seller Horizon Capital (Ukraine), regional private equity investor;
Buyer Rationale major platform in large market;
Seller Rationale attractive valuation and timing;
NBs deal follows one month after Lactalis’ acquisition of leading Croatian cheese player Dukat
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It’s perhaps not a surprise that this deal was announced just one month after Lactalis’ acquisition of Dukat in Croatia. With sales of 1,7 bln € in 2005, Bel is the smallest of the big three French cheese groups, but has been just as aggressive as the others in acquisitions in Europe. Together with the Lactalis deal, this transaction shows that these competing groups are prepared to ‘raise the stakes’ by making major investments in politically riskier countries. Expect more deals from them in that region.

Bel is one of the three big powerhouses of the French cheese industry, alongside Lactalis and Bongrain. Each of them are global or European leaders in one or other cheese categories, and Bel’s focus within this constellation is basically melted cheese, usually sold in portions, with their flagship brand being ‘La vache qui rit’ (laughing cow).

In 2002 it acquired the Dutch group ‘Leederhammer’, with market leading positions in several western European countries. It has also made a number of smaller deals in the fragmented markets of central and Eastern Europe.

Bel perhaps isn’t the most obvious of these three French merger-contenders to acquire Shostka, since Shostka is the brand leader in basic yellow ‘hard’ cheese, a low margin business with huge competition from dairy co-operatives and limited brand premium potential.

But cheese is one of those old-fashioned businesses where acquisitions are not always about getting hold of brands or portfolios.

Over the last 15 years, these groups have acquired several companies in CEE whose products do not fit their own core portfolio or strategy. For instance, Bongrain acquired Poland’s Toska in 1998, when it didn’t even make fresh cheese or yoghurts.

What’s maybe more important in developing markets is proximity to major towns and milk supply, spare capacity, and of course distribution – Shostka’s cheeses are probably sold through the same sales channels as the ones Bel is focusing on, and it is located close to Russia which is a perennial net importer of cheese from its neighbours.

Dairy tends to be quite a safe investment for private equity firms in CEE. Historically they’ve been able to acquire distressed assets cheaply, refinance them and wait for a western buyer who doesn’t want to do a deal with a local co-operative. So, Horizon is likely to have made a reasonable ROI here.

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Size (€ mln) 400
Sector chilled dairy
Asset Quality France leader branded
Seller large plc
Buyer private corporate
P/S 4,0
P/Ebitda 16,0
Type total consideration
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