October 11, 2010
Food firms scramble to purchase NZ Tegel Foods
New Zealand's largest poultry and meats group, Tegel Foods, could be purchased by new owners at the end of 2010.
Tegel Foods' current private equity owners, Pacific Equity Partners (PEP), could wrap up a deal with prospective food firms by the end of the year.
The information memorandum for New Zealand's largest poultry and meats group was dispatched on Friday and is expected to stir the greatest interest among large South American and Asian food companies as well as global private equity players.
Brazil's largest beef producer, JBS, its rival Marfrig Alimentos, and compatriot Brasil Foods are said to be interested candidates as each has shown a propensity for international expansion.
JBS acquired US poultry giant Pilgrim's Pride for US$800 million last year while Marfrig spent US$1.3 billion in June for US meat distributor Keystone Foods in a deal that expands its supply into restaurants such as McDonald's and Subway. From Asia, companies such as China's Bright Food, or Singapore's Cerebos Pacific or Olam, could become additional bidders.
Tegel, which supplies 52% of the New Zealand market, was bought by PEP from Heinz in 2005. While PEP has expanded Tegel's offerings into other meat products, the company's management is confident of other growth opportunities for its next owner. One key option would be expanding supply to Australian supermarkets and restaurants.
Tegel recorded earnings before interest, tax, depreciation, and amortisation of NZD79.6 million (US$61 million) in 2009-10 and the information memorandum shows company management has a well-developed plan to lift this to NZD144.7 million (US$108.95 million) by 2015. While comparable companies, such as JBS and Brasil Foods, have historically traded on an earnings multiple of 7.5-8 times, it is thought Tegel would be able to attract a multiple closer to 14 times because of its high EBITDA margins and low capex.
At 14 times earnings, Tegel could fetch about NZD1 billion.
Tegel's EBITDA margins last financial year were 19.5% and it has a steady maintenance capital expenditure profile of about NZD6 million a year.
Another key attraction for buyers is Tegel's unique market dynamics, which allows it to operate in highly protected markets. New Zealand does not allow imports of poultry while Tegel's next biggest market, Australia, imports its chickens exclusively from New Zealand for food safety reasons.
PEP, advised by Greenhill Caliburn and Morgan Stanley, is unlikely to head down the path of choosing an initial public offer with the level of interest expected from trade buyers and PE firms. Indicative offers are expected by early next month.
