Tuesday, March 7, 2017

M&A In European Food

I'm not sure that consumer packaged goods is the area to be in, at least not in the U.S. and not based on names like Kellogg or General Mills.
For a quarter-century those manufacturers ratcheted prices as though they were tobacco companies but people find it easier to give up their Cheerios than their cigarettes.

The managements milked that approach for pretty much all it was worth so, as operating entities, they aren't all that attractive but someone will decide the only thing left to do is to asset strip or dividend recap the life out of the former cash cows.

Top o'the market to ya.

From Bloomberg Gadfly:

Europe's Food Buyout Boom Can Finally Start
Private equity can say a big thank you to Kraft Heinz Co. The U.S. food group's failed tilt at Unilever NV creates an opportunity the buyout industry has salivated over for years.

U.K. bankers might call it a sausage roll-up. Their Continental counterparts might prefer a Swiss roll-up. However you slice it, the time may have come to combine European food assets into a sizeable leveraged buyout.

The portfolios of Europe's biggest consumer goods companies are stuffed with underperforming food businesses that could benefit from more aggressive management. CEOs have been reluctant to let new owners have a go. After the brief $143 billion Unilever siege, that's now changing.

Hungry for Deals
Private equity has long eyed unloved assets held by European consumer groups...
...The drama has prompted the Anglo-Dutch group to review its entire portfolio, implying pieces might come onto the market. Its spreads business, with an estimated enterprise value of 6 billion euros ($6.3 billion) according to Jefferies research, is the stand-out disposal candidate.
Before Kraft's assault, Nestle SA was sounding pretty relaxed about its U.S. frozen food and confectionery businesses despite them being among the group's slowest growing divisions. Recent events should focus the mind of Chief Executive Officer Ulf Mark Schneider. The assets could be worth up to 14 and 19 billion euros respectively, say Jefferies analysts....MORE
See also yesterday's "Credit Suisse’s Global Financial Strategies (Mauboussin et al) 'To Buy or Not To Buy – A Checklist for Assessing Mergers & Acquisitions'":
“Companies that act early in an M&A cycle tend to generate higher returns than those that act later. The first movers enjoy the benefits of a larger pool of targets and cheaper valuations than companies that buy later in the cycle...."
As the oldtimers used to say, "Well bought is half-sold"....
Recapitulated in "European Buyout Firms Head for the Exit".