Ongoing premiumisation drives M&A activity

Especially against the background of the product and price transparency gained through the Internet, brands are more important today than ever. Their brand awareness and established customer base guarantee a continuous sales stream. They are of great interest to many strategic buyers and financial investors and regularly achieve high valuations. 
Even for small but fast-growing companies, buyers are prepared to pay a high single-digit, if not even a low double-digit EBITDA multiple. Global companies such as Blue Buffalo, Ainsworth Pet Nutrition and Champion Petfoods presented even higher factors. Here, the multiple is rather a breath-taking 20x EBITDA. Thus, it reaches a level that sounds like a valuation for a software or a healthcare company, but not a consumer goods firm. If possible at all, to justify such a valuation, an acquirer has to identify considerable expansion potential and significant synergies.

There is no doubt that the pet food market is highly attractive. In many regions it is developing faster than other consumer goods sectors. At the same time, it is considered to be crisis-proof and to allow achieving high margins. So, many parties try to acquire shares in a successful player and benefit from the positive, ongoing developments. The premium segment in particular promises great opportunities in the future. In recent years, it has outperformed the other segments because of an increasing number of people deciding to spend more on their pets to pamper them.
The acquisitions of Blue Buffalo, Ainsworth and Champion this year were multi-billion dollar transactions in North America. However, they are exemplary for the entire industry and can serve as a model for smaller transactions in Europe or Asia. Despite a similar valuation level, a closer look reveals differences between the transactions.
• Takeover of Blue Buffalo by General Mills in February 2018: the acquisition of Blue Buffalo at the beginning of the year was certainly a big surprise for many. In fact, the listed company generated sales of approximately 1.3 bn dollars and an EBITDA of approximately 320 mio dollars. Industry observers therefore assumed that Blue Buffalo would soon become a buyer itself, but not a target. General Mills, which has a turnover of about 16 bn dollars but no relation to the pet sector so far, has immediately achieved a leading position in the US premium segment with this single acquisition of Blue Buffalo. General Mills, which also owns…