Financieel Dagblad, the Dutch newspaper mentions that Nutreco is preparing a bid on Provimi. The price tag mentioned by the press (at least € 1.4bn) might seem high at first sight. Note however that Provimi has a strong presence in fast growth markets and a focus on high value products. Provimi is active in promising markets such as Brazil, Mexico and Russia. Note that Provimi’s EBITDA rose by 47% last year in Brazil and by 35% in Russia.
This is the third time that Nutreco is looking to take over Provimi. Nutreco is clearly interested in Provimi but refuses to pay an excessive price. Provimi has been owned by Permira (private equity) since Jan 2007.
Provimi sold its pet feed business (mainly private label for supermarkets) earlier this year. Provimi has therefore become a more attractive prey for Nutreco. Other potential acquirers include ADM and Bunge.
2010 key financial highlights of Provimi:
- Turnover: € 1,615m (Nutreco: € 4.9bn) or +11%
- REBITDA: € 154m (Nutreco: € 279m) or + 20%
- REBITDA margin: 9.5% (Nutreco: 5.6%)
- REBIT: € 130m (Nutreco: € 223m) or +21%
- Net profits continuing operations: € 54m (Nutreco: € 113m)
Valuation:
If we apply a 15% premium to Nutreco’s EV/EBITDA11 (6.69x), Provimi’s REBITDA would have to grow by 18% this year to justify a price tag of € 1.4bn. Note that in 2010, Provimi’s REBITDA grew by 19.6% or by 12.4% on a like-for-like basis.
Financing implications:
Nutreco’s net debt would rise to about € 1.6bn if the price tag amounts to € 1.4bn implying a net debt/EBITDA11 multiple of 5.4x. It is Nutreco’s goal however to stay below 3x. In other words, Nutreco would need to raise € 0.7bn through a rights issue or adisposal. We believe that the meat business could be worth € 0.3bn assuming an EV/EBIT of 10x and a normalized EBIT of € 30m.
Conclusion:
A price tag of € 1.4bn might seem steep at first sight. Provimi’s business would be a perfect fit however in terms of geographic presence and product mix. We anticipate that the valuation multiples for Provimi will exceed Nutreco’s because of Provimi’s exposure to value added product (high margins) and growth markets. Synergies are significant. For example, both companies have headquarters in the Netherlands. Optimization of production allocation could also generate synergies. Given the above, we would welcome a deal as long as the price does not turn out to be much higher than € 1.4bn.