german food m&a 2011

8/3/2019 German Food M&A 2011

http://slidepdf.com/reader/full/german-food-ma-2011 1/14

Post-event report

T Fd Idst:Sid Fdts Sid D F?Sustainability of the food industry and its attractiveness to investors


http://slidepdf.com/reader/full/german-food-ma-2011 2/14The FooD InDuSTry: SolID FunDamenTalS - SolID Deal Flow? 2

The FooD InDuSTryPoST-eVenT rePorT

The breakfast discussion ‘The Food Industry: Solid Fundamentals- Solid Deal flow?’ began with a presentation based on

mergermarket data, setting the scene and giving a shortintroduction to the topic by looking at recent deal flow in thesector. It showcased information on Food and Agriculture relateddeal flow in Germany and how the German market compares toactivity on a global level.

Global deal flow peaked just before the 2008 crisis and has sincebeen in decline, both in terms of value and volume of transactions.Taking a closer look at the German market, one saw that thenumber of deals decreased in the aftermath of the crisis, but hassince then and over the course of the past three years remainedrelatively stable. The data in relation to the value of deals in theFood and Agriculture space suggested a high degree of volatility.However, this finding comes with a caveat that, for many deals inthe space, the value of the transaction is undisclosed.

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A closer examination of in and out-bound deal flow highlightedthe close economic ties between Germany and the Netherlands,with a substantial number of deals in the German Food spacebeing struck by Dutch businesses (24% of all deals) and asimilarly large number of deals stemming from Germany beingdone in the Netherlands.

A closer look at the private equity industry revealed that the levelof private equity investment in the German Food space is on parwith overall private equity activity in Germany - private equityinvestment in the Food space made up 15% of all M&A activity in

the sector; while private equity investment made-up 18% of allGerman M&A activity.

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reTroSPeCTIVe -moST reCenT DealS

Top 10 Recent German Food Deals

acdDt

Tgt Cp Bidd Cp Bidd Ct S Cp SCt

Nov-10 Arktis TiefkuehllogistikGmbH

Nordfrost GmbH & Co KG Germany

Oct-10 D&S Fleisch GmbH Danish Crown AmbA Denmark

Sep-10 Kamps GmbH (130 outletsin southern Germany)

Max Lang BackereiKonditorei GmbH & Co KG

Germany Kamps GmbH Germany

Sep-10 Kamps GmbH (100 outletsin Northern Germany)

H. von Allwoerden GmbH Germany Kamps GmbH Germany

Aug-10 Soft Drinks InternationalGmbH & Co

Refresco Holding BV Netherlands

Aug-10 Kamps GmbH German Equity PartnersIII LP

Germany Lieken AG Germany

Aug-10 Kronia-Quelle HeinrichKroner GmbH & Co KG

Hassia MineralquellenGmbH & Co KG

Germany Kronia Saur Family Germany

Jul-10 Baeckerhaus Ecker GmbH Edeka Sudwest eG Germany

Jul-10 Beam Global Spirits & WineInc (Production Plant)

Henkell & SoehnleinSektkellereien KG

Germany Beam Global Spirits& Wine Inc

USA

Jul-10 Füngers Feinkost GmbH& Co KG

Wernsing Feinkost GmbH Germany Excelsior Delikatesy Sp;Heristo Aktiengesellschaft

Poland



ouTlooK anD Panel DISCuSSIon

Cs sct

China 68

US 47

India 26

Russian 25

France 20

Italy 20

Japan 17

Germany 16

UK 14

Brazil 11

Spain 10

Canada 10

After a short, data-driven outlook on whatthe future holds in store for the industryusing the mergermarket Heat Chart, thepanel discussion began with some outlook-related comments from the panellists. They

agreed that an aging population in developedmarkets, the changing consumption patternsin emerging economies, and the resultingpressures on raw materials, will lead tointeresting opportunities for all players inthe Food and Agriculture value chain. It wassaid, however, that this will also present theindustry with significant challenges, too, andthat many key players are already looking forsolutions to these pending complications.One panellist pointed toward China and itsdesire to ensure food supplies, and thusaccess to food raw materials. At the sametime, ensuring access to end consumerswas recognised as a key component toguaranteeing growth in the years to come.

All panellists pointed to the importance ofbrands and how players in the German, butalso global, food industry are frequently facedwith the choice of focussing on either brandbuilding, and thus ensuring higher margins byoffering premium consumer goods, or placinga greater emphasis on cost and carving out aniche for themselves in the low cost but highvolume end of the market.

This led naturally to a conversation about thedeal drivers and key trends that characterisedeal flow in the German food market and howthey compare to what is prompting global foodbusinesses to do deals. While all panellistspicked on the comments from the introductorypresentation, (about the bulk of German dealflow in the space being intra-German), theyfundamentally agreed that the drivers in thespace followed similar lines the world-over.

The speakers then gave insight andexplanations as to why deal flow is muchweighted on intra-German deals anddiscussed an anomaly in the German marketthat sees the development of pure regionalchampions that hold dominating positionsin their regional markets, but who do notnecessarily hold any market share in thewider national market, let alone on theinternational stage.

While talking about the various factors thatmake the industry in Germany an attractiveinvestment destination, the panellistscommented on the interest that private equityfunds have, and will continue to, in the space

and the key characteristics that they look forin suitable targets.

After a short review of the entire Food andAgriculture value chain and the cross-relations within the space, the panellistsdebated the opportunities for upstream anddownstream dealmaking. As an example,one panellist commented on the possibilityof wholesalers expanding into logistics andthus increasing the exposure to the industry’svalue chain. Another example that wasdiscussed was that of raw material producersexpanding via processing facilities, such asvegetable farmers expanding into on-sitefreezing being a good case in point.

The panel discussion was rounded off with alook at the factors that ensure the successof an M&A transaction in this specific sub-sector. Also, it was reitereated in the closingremarks that private equity players could playa significant role in driving future M&A activityin the sector going forwards, as they look forattractive investment opportunities for the drypowder hoarded during the recent economicdifficulties.

After a Q&A session with the audience inwhich the issue of Asia and the expectedemergence of Asian buyers were discussed,particularly from China and India, thediscussion came to a close and panellistsand delegates alike were able to enjoy somenetworking time and continue discussionsoutside of the conference room.

mergermarket Heat Chart



FooD & aGrI:a SaFe haVen wITh ProSPeCTS

By Ci Fitt, Head of Food & Agribusiness Research and Advisory Europe, Rabobank Internationaland oiv wt, Head of Acquisition Finance, Germany, Rabobank International

Germany, heaVyweIGhT In euroPean F&a,SeT To BeneFIT From GloBal TrenDS

German FooD & aGrI Value ChaIn

Germany is a heavyweight in European food and agricultureproduction. From farm to fork, the German food value chain hasan estimated value of €630bn (see Figure 1). It is the largestfood-processing industry and the second-largest producer ofagricultural products in Europe. Together these sectors areestimated to grow at 4% per annum up to 2015.

The German agriculture industry is set to benefit from growingglobal demand for agricultural products. The increase in demandand change in dietary patterns will be most apparent in upcomingmarkets like India and China. But these countries have onlylimited potential to increase agricultural production whereas theopportunity to increase production is highest in countries withlimited volume growth. This geographical mismatch will increasethe role for trade of agricultural products. With its strong local

agriculture sector and logistics base, Germany should be able toreap the benefits of a growing export market.

These export markets are expected to become tighter and morevolatile. Worldwide food demand is on the rise supported by stronggrowth of the global population and growth in disposable incomes.By 2050, there will be an additional 2.2bn mouths to feed, andhigher incomes will enable a large consumer group to upgrade toa diet that includes more animal proteins. The change in dietarypatterns and the growing demand for biofuels will increase thedemand for AgCommodities. But due to limitations on agriculturalproduction, supply is not expected to keep up with demand. Theworld arable land area can only grow marginally and subsequentlysupply-growth will have to be realised primarily throughproductivity gains.

The German agriculture industry is projected to report attractivegrowth on the back of the increase in demand. In value terms, theagriculture market is expected to grow at 8% per annum, whichwill be mainly driven by volume growth coming from increasedexport opportunities. This figure seems very attractive butearnings in the agriculture industry will be very volatile due tothe tighter global market and the fact that agriculture remains acyclical business. Investment opportunities upstream can be foundin the resources needed to produce agricultural products, thetechnology needed to increase productivity and in trade.

On the domestic market, notably the German food-processingindustry will benefit from the increased demand for value-addedproducts. Although population growth and caloric intake are under

pressure in Germany, rising incomes and increased demand forhealth and convenience are expected to drive value growth to anestimated 2.5% per annum up to 2015.

The biggest part of the demand growth will be met by localproduction. The German food-processing industry has a relativelystrong track record in the production of innovative and qualityfood products. Companies that will benefit most from the growingdemand in the food markets are the ones that have strongerbargaining power vis-à-vis suppliers or clients. In comparisonto the upstream activities, food processing tends to generate

more stable cash flows as it is less cyclical and volatile due to asubstantially lower commodity component.

Farm inputs Agriculture

Production

€54bn €155bn

€39bn €64bn

€167bn €150bn

Processing ConsumptionDistribution

From farm to fork > €630bn industry value in 2008

Foodprocessing

Craftfoodproduction

Wholesale Retail

Food service

Consumer



oPPorTunITIeS For Value-aDDPoSITIoneD In DownSTream aCTIVITIeS

CommoDITIeS, InCreaSeD ComPeTITIon anDreTaIl ConCenTraTIon To DrIVe ChanGe

CommoDITIeS: rollerCoaSTer CommoDITyCoSTS amPlIFIeS neeD For rISK reDuCTIon

ConCenTraTIon: ChanGe In reTaIl FoCuS From reGIonalTo more naTIonal To ImPaCT ProCeSSInG InDuSTry

The market for value-added products is opening up. Lifestylechanges, arising from shifts in socio-demographics, are fuellingdemand for healthy, convenient and indulgent food. German

consumers value quality and local products and their attitudestowards big issues like sustainability have had a significant effecton buying behaviour. This is for instance, reflected in the scale

of the German organic food industry and the high investmentsin research and development (R&D). As volume growth will belimited, processors will be urged to increase the value-add to the

product in order to keep their top lines and margins stable. Thechanges in consumer behaviour will present opportunities to launchnew products and will play a role in defining corporate growth.

The 2007/2008 commodity boom and the economic crisis have notleft the industry unaffected. The sudden, relentless and rapid risein prices of many AgCommodities weighted on many processors’

profitability margins. In addition, the economic downturn impactedfood demand. The German food processing industry lost 4.1%in value terms in 2009, which was driven by a higher share ofpromotions and changes in consumer demand. The recent wheatprice spike has revived market fears about the ability of food groupsto turn to profitable growth.

These trading conditions are posing several challenges to theGerman food processing industry. Challenges to which we refer asthe 7C’s (see Figure 2). Some of these C’s are short-term effectsarising from the downturn, like the limited availability of creditin the market or the pressure on cash conversion. Other C’s –commodities, concentration and competition – are more structuraland will continue to drive change in the competitive environment of

the German food processing industry.

The outlook on higher and more volatile commodity costsincreases the need for risk reduction at the processors’ end.German food processors with reasonable scale and sophisticationcan and do hedge their positions in commodities and currencies.In some cases, leading private-label manufacturers negotiate a

‘processing fee’ rather than a final price. For players operating in

the premium segment or in products where there is a substitutionmargin, the impact is more limited. But players that lackdifferentiation and scale are less well-equipped to deal with thisvolatility. Moreover, many of these mid-sized producers alreadyhad lower operating margins than their larger peers.

The high retail concentration in Germany is causing an imbalancein the food value chain. The top-five retailers have steadilyincreased their share and now control 74% of the market.This concentration level is equal to the ones seen in otherEuropean countries but the structure of the retail landscapeis very different. Most German retailers are organised throughindependent regional branches or retail affiliations. Sourcingis also done on a regional base. Therefore the way retail is

organised is also reflected in the structure of the German foodprocessing industry. There are more regionally strong brands andsmall and medium-sized food processors in comparison to otherEuropean countries. These players tend to have low bargainingpower towards the retailers and have suffered from thisimbalance in the value chain over the past years. With retailersgradually shifting towards a more national approach it is expectedthat these players will be pressured even more.

Competition

ConsolidationContracts

ConcentrationCommodities

CashConversion

Credit

ChanGInGConSumer

DemanD



ComPeTITIon: B/C BranDS FurTher In The SQueeZeaS PrIVaTe-laBel eXPanSIon IS on The ThreSholD

InCreaSInG aPPeTITe For m&a To STIllhunGer For GrowTh

FooD aTTraCTIVe ITem For PrIVaTe eQuITy menu

Competition between brands and private label is expected to heatup further. Market share development of the past years has alreadyshown that B/C brands are being squeezed out of the German

market due to increased pressure from private label and strongpremium and A-brand growth. Private label holds a value shareof 36% in the German food market. Though the penetration rateis in line with the European average, Germany is running slightlybehind on the private-label continuum with most of its private-labelproducts being positioned in the hard discount range. Leading

retailers like Edeka and Rewe are, however, now rapidly expandingtheir private-label offer with more sophisticated products. Thisproduct push is likely to boost further private-label expansion. The

projected expansion of private label and the continuous strength ofleading brands will further pressure the positions of the B/C brands.These players often transfer to private-label production. In privatelabel and B/C brand production the bargaining power of players islow and it is increasingly difficult to differentiate. This is increasingthe need for scale.

These challenges are set to drive further industry consolidation.Competition is intensifying as players are fighting for market share.The opportunities to raise prices are limited as long as demandremains subdued, so cost savings must be achieved to avoid margindeterioration. Producers of leading brands and efficient private-labelproducers seem the most natural long-term winners from thesetrends. Regional small and medium-sized food processors will comeunder further pressure. Since the past two years, balance sheetsacross the F&A space are increasingly underutilised while cash-flowgeneration has kept up well. And the synergies arising from an M&Adeal would be a welcome boost to earnings growth.

Drivers for M&A will vary greatly per food segment and type ofplayer. The growing need for efficiency and better asset utilisationin food processing will be a trigger for M&A. Vandemoortele (BE)for instance acquired Van Dijk foods to rationalise production.

Bakkersland (NL) acquired Kamps Quality Bakers for the samereason, but also with the goal to reduce overcapacity in the industry.Especially for private label manufacturers, scale will be importantand we expect that achieving this scale will be increasingly donethrough a buy-and-build strategy. Equally, food producers arereviewing their strategies and redefining their priorities. Thisis triggering some M&A activity in terms of consolidation andportfolio repositioning. These can have global consequences for asector such as the take-over of Cadbury by Kraft or Best Brandsby CSM resulting in a wide range of strategic responses fromother sector participants that want to stay ahead of the crowd.Changing consumer trends will also shape activity as large brandmanufacturers look either to enter or strengthen their positionin high growth niches. Acquisitions like Bionade by Dr. Oetker orInnocent Drinks by Coca Cola being examples of these types of deals.

The role of private equity continues to be of importance to futureconsolidation in the F&A space. Food processors tend to lendthemselves well for equity finance with their strong cash conversionand the relative high barriers to entry. And with the support of anequity partner, food processors are enabled to indeed stay ahead ofthe crowd, consolidate and improve asset utilisation. By improving

the core of the business, investing in the brand, and increasinglythrough buy-and-build strategies, private-equity companies have

been able to create value. This is reflected in the successful exits byprivate-equity partners over the past years.

F&A has solid fundamentals and we believe it has solid deal flow.Rabobank will be happy to support you in your search for andfinancing of the perfect F&A add-on to your investment portfolio.



CmS haSChe SIGle

DeloITTe

Corporate success is all about leveraging market insights andreality, backed by maximum legal confidence. With its strong,trust-based client relationships, extensive presence and highlyqualified advice, CMS Hasche Sigle can help you achieve youraims. Our lawyers, tax consultants and notaries advise clients

from mid-sized companies to major groups on all aspects ofnational and international commercial law.

With 250 lawyers, our Corporate/M&A practice is one of thelargest in the country and a leader in its field. CMS Hasche Sigleregularly outperforms all other law firms by advising on thelargest number of M&A transactions with German involvement,making it a front-runner in the German M&A market. The successof our M&A team has been recognised by various accoladesfrom industry commentators, including FT/mergermarket andAcquisitions Monthly.

Increasingly, clients demand that their law firms deliver acrossmultiple European jurisdictions. Thanks to the international

capability of CMS, we regularly advise in a large number ofcross-border transactions involving multiple internationalCMS offices. This strength is also reflected in our rankingsboth in the top tier of European M&A law firms and at thehead of the relevant league tables.

Supported by more than 2,800 lawyers at 44 international CMSoffices in 27 countries, our synchronised full-service approachdelivers top-quality service and seamless management of cross-border projects. For our clients, this means excellent advice andsustainable solutions tailored to their needs.

The unique ‘CMS European M&A Study’ offers our clients anin-depth analysis of deal points across more than 750 M&Atransactions from 2007 to 2009. This highlights the internationalcohesion of the CMS organisation and our leading position as aprovider of innovative legal advisory products. CMS is the go-tofirm for M& A advice in Germany and Europe.

Deloitte provides audit, tax, consulting, and financial advisoryservices to public and private clients spanning multipleindustries. With a globally connected network of member firms inmore than 140 countries, Deloitte brings world-class capabilitiesand deep local expertise to help clients succeed wherever theyoperate. Deloitte’s approximately 170,000 professionals arecommitted to becoming the standard of excellence.

Deloitte’s professionals are unified by a collaborative culturethat fosters integrity, outstanding value to markets and clients,commitment to each other, and strength from cultural diversity.They enjoy an environment of continuous learning, challengingexperiences, and enriching career opportunities. Deloitte’sprofessionals are dedicated to strengthening corporateresponsibility, building public trust, and making a positive

impact in their communities.

Contact details:Dr. Hendrik HirschCMS Hasche SigleBarckhausstrasse 12-1660325 Frankfurt am MainGermany

Tel: +49 69 71701 226Fax:+49 69 71701 40542Email: [email protected]

Contact details:Karsten HollaschPartnerSchwannstraße 640476 DüsseldorfGermanyTel: +49 (0)211 8772-2804Email: [email protected]



raBoBanK GrouPRabobank Group is an international financial services provideroperating on the basis of cooperative principles. The Group iscomprised of 143 independent local Rabobanks plus RabobankNederland, their umbrella organisation, and a number ofspecialist subsidiaries. In the Netherlands, Rabobank offers all

finance products and services, while its international focus ison the Food & Agri business. Rabobank Group’s total employeebase numbers about 58,400 FTEs, who serve approximately10 million clients in 48 countries. Rabobank Nederland acts,amongst others, as an (international) wholesale bank and as abankers’ bank to the Group. In terms of Tier I capital, RabobankGroup ranks among the world’s 25 largest financial institutions.Rabobank Group has the highest credit rating, awarded by ratingagencies Standard & Poor’s, Moody’s Investor Service and DBRS.

Rabobank International - the wholesale banking and internationalretail banking division of Rabobank Group - has about 14,500employees (in FTEs) including the foreign subsidiaries. Boasting

a presence in 534 business locations, Rabobank International is awell-known player in the world’s key financial markets.

Rabobank International’s Acquisition Finance unit supportsPrivate Equity investors and companies from the Food &

Agricultural and Renewable Energy sectors in structuring,arranging and underwriting the financing of transactions. With46 FTEs across 7 locations in Europe plus the US, Australia andHong Kong, the Acquisition Finance team has a strong arrangingand underwriting capability, having acted as sole underwriter,MLA and book runner in a number of Food & Agri buy-outs inEurope and the US.

Rabobank Group combines the best of two worlds: the localinvolvement and personal touch of the local Rabobanks withthe expertise and economies of scale of Rabobank Nederland/Rabobank International.

Contact details:Oliver WolterHead of Acquisition Finance Germany/Austria/SwitzerlandRabobank InternationalSolmsstr. 8360486 FrankfurtGermanyTel: +49 (0)69 79 206 124Email: [email protected]

Cyrille FilottHead of Food & Agribusiness Research and Advisory Europe

Rabobank InternationalGildenkwartier 1993511 DH UtrechtThe NetherlandsTel: +31(0)30 71 23814Email: [email protected]

Joachim SteckVice President Acquisition FinanceRabobank InternationalSolmsstr. 8360486 FrankfurtGermanyTel: +49 (0)69 79 206 333

Email: [email protected]



Financial experts in Food & Agribusiness.

Finding opportunities.

To help you grow.

As one of the world’s leading food and agribusiness banks, Rabobank

has a deep understanding of clients’ needs throughout the value chain.

We have the world’s largest dedicated food and agribusiness research

team with expertise and experience to spot opportunities for growth

and investment. Our global Acquisition Finance team has a strong

arranging and underwriting capability, having acted as sole underwriter,

MLA and bookrunner in a number of Food & Agri buy-outs in Europe

and the US. Opportunities for growth are out there. We’ll help you find

them. www.rabobank.com

Naturally inspired



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