Nomad Holdings Ltd.; market cap (as of 01/05/2015): $576.72m


On April 20, 2015 Nomad Holdings Limited (LSE: NHL), a special purpose acquisition vehicle, announced an agreement to acquire for €2.6bn, Iglo Foods Holdings Limited (Iglo Foods), from a company backed by the private equity group Permira. The acquisition would allow Nomad Holdings to access the most appealing brands in the frozen food industry such as the British Birds Eye, the German Iglo and the Italian Findus and it is expected to be the first of numerous Nomad’s acquisitions in the wake of the recent consolidation trend in the food industry.


About Permira and Iglo Foods

Permira, a European private equity firm with a total committed capital of over €25bn has a long track record of successfully investing in consumer brands around the world like Dr. Martens, Hugo Boss and Valentino. Since 1997, the Funds have invested €6.7bn in 24 consumer companies, realizing superior returns for investors. In particular, the firm acquired the Iglo Group from Unilever for €1.9bn in 2006 and added a significant scale to the group in 2010, when Permira also acquired from Unilever the Italian frozen food company Findus for €805m, including very strong brands such as 4 Salti in Padella, Sofficini, That’s Amore and Capitan Findus.

As a matter of fact, Permira managed to transform a declining unit of a conglomerate into Europe’s largest frozen food platform by investing heavily into product innovation, improving its brand marketing and taking advantage of consolidation opportunities in the European frozen food market. As mentioned by Cheryl Potter, the head of Permira’s global consumer team, the private equity firm is “very proud to have helped Iglo Group become the undisputed European leader in branded frozen food over the past 8 years”. In 2014 the Iglo Group, which has a 30% share in the European frozen food market, made €1.5bn in revenues and €306m in EBITDA. The current Group’s Chief Executive Officer, Elio Leoni Sceti will lead the company until next June, when he will become a non-executive director of Nomad Foods Limited.


About Nomad Holdings

Nomad Holdings was founded last year by consumer goods tycoons Martin E. Franklin and Noam Gottesman as an acquisition vehicle with an objective to build Nomad into a global consumer brands business (to be renamed into Nomad Foods Limited upon closing of the deal). Mr. Gottesman is a founder of investment firm Toms Capital and a co-founder of hedge fund GLG Partners, while Mr. Franklin is a founder and executive chairman of Jarden Corp, which has acquired several well-known consumer brands, the fact that allows him to have a deep expertise in the consumer products industry. Following the closing of the transaction, Mr. Gottesman and Mr. Franklin will be appointed as Non-Executive Chairmen of the new company.


The Deal

The deal values the business around 1.7x 2014 revenues and 8.5x 2014 EBITDA, at €2.6bn. It is expected to be funded through a combination of Nomad’s cash on hand, equity and the proceeds from a private placement of approximately $750m. Permira, after cashing in 2.4x the capital invested, will retain a 9% stake in Nomad Foods Limited upon closing in order to benefit from an upside potential to be unlocked in the food consolidation strategy. The transaction is subject to customary closing conditions and is expected to complete in the second quarter of the current year.


The Rationale

The acquisition vehicle Nomad Holdings, headquartered in a tax haven -the British Virgin Islands, perceives the transaction as a great first strategic move towards building a portfolio of high quality companies and brands. The Group aims to pursue both organic and inorganic growth in order to enhance its consumer offering and deepen its market leadership. Also, Nomad Holdings would be able to tap into growing consumer demand for healthier products, as the frozen food producer has established a pipeline of innovative products such as whole-grain fish fingers. Although the frozen food sales make up only a small portion of the total grocery market, demand has been growing in recent years: the freezing technique preserves the intrinsic qualities of food such as taste and nutrition, in addition provides a good solution for reducing food waste.

Furthermore, there is an important underlying financial reason that seems to justify the deal. The strong dollar following the divergent monetary policies in the US and Eurozone makes the overseas acquisition very beneficial, as a purchase of a local US-based target would not entail such a currency-driven benefit. American firms have not been the most active in terms of deal-making since the beginning of 2015: the strengthening of the dollar might be one of the most important reasons driving cross-border M&A from American companies. Although, recently we have experienced a slight rebound of the euro, trading today at around 1.12 dollars compared to the 1.05 of mid March, M&A activity will probably endure and several cross-industry acquisitions are expected from the US-based companies.


The Food Industry Consolidation trend

Being defined as an “anchor investment” by Nomad Holdings, the belief is that further acquisitions may be pursued to enhance Iglo Foods’ consumer offerings in both existing and new categories. Noam Gottesman, Nomad’s Co-Founder, commented: “What people eat and how and when they eat is constantly evolving, making food one of the most resilient yet dynamic categories in the consumer sector”.

As a consequence this acquisition is likely to further push merger activity in the food sector in the near future, following the recent stream of deals in this industry. It is interesting to note that this consolidation process is driven by both mid-market food groups, such as US meat producer Tyson Foods’ $8.6bn acquisition of rival Hillshire Brands, as well as by consumer behemoths, such as the last month’s $45bn blockbuster deal between Heinz and Kraft Foods.

This consolidation trend seems to be influenced by several factors. The long-term success in the food industry relies on continuous innovation, worldwide presence, negotiating power and the development of significant production capabilities. Also, the need for a scale-up by growth-challenged companies can be tackled through acquisition of other providers with the same or different product lines. In fact, the consolidation comes as the food industry faces declining profit margins, where existent companies try to leverage their portfolios with trendy brand-name items together with a global marketplace to become increasingly competitive. However, as recently demonstrated by the Heinz-Kraft transaction, cost-cutting purposes are driving M&A in consumer industries as well. For example companies like the Brazil’s 3G capital, famous for working in tandem with Warren Buffett, are targeting large consumer groups that have struggled to grow and where aggressive cost-cutting measures may rapidly improve profitability. Another reason that historically brought to consolidation, although doesn’t apply to the Nomad-Igloo deal, is the depletion of certain commodities like pork and other crops like limes and avocados, as a result of drought and diseases: in Tyson’s case the acquisition with Hillshire represented access to the number one provider of pork in the US market. Finally, increasing consumer health awareness is continuously stimulating growth in this industry but the rising costs associated with regulatory compliance can be unaffordable for several small firms, which in turn brings further market consolidation.

In addition to the above-mentioned strategic reasons, also financial interests are expected to drive the M&A activity in the food sector in the early future. As demonstrated by the successful bet of Permira on Iglo Foods, private equity firms continue to target food ingredient companies since capital expenditures required to develop these companies are often not very high in comparison to the growth and cash generation potential.


Financial Advisors

Centerview Partners acted as the only financial adviser of Permira, while Barclays and UBS Investment Bank advised Nomad in the transaction.

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