Pitch PE Growth Deal M&A Awards Belgium 2019: GBfoods – Continental Foods

The Belgium Panel of Judges of the M&A Awards have nominated this deal for the M&A Award ‘Best PE Growth Deal 2019’. This pitch was submitted by Johan Diels of ING Bank.

Name of the deal:     GBfoods acquires Continental Foods from CVC Capital Partners            
Date closed:              23 July 2019
Published value:       €900 million    
Buyer:                        GBfoods    
Target:                       Continental Foods    
Seller:                        CVC Capital Partners    
M&A Database:        https://mena.nl/deal/10259

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Involved firms and advisors sell side:    
Financial:          ING Bank, UBS
Legal:                Cleary Gottlieb Steen & Hamilton
Financial/DD:   EY

Involved firms and advisors target:
Financial:          ING Bank, UBS
Legal:                Cleary Gottlieb Steen & Hamilton
Financial/DD:   EY

Involved firms and advisors buy side:
Financial:          AZ Capital
Legal:                Clifford Chance
Financial/DD:   PwC


Brief description deal / Deal outline:
GBfoods has acquired Continental Foods from CVC.Continental Foods (“CF”), with its headquarter in Puurs, is a Belgium based consumer foods business active in Europe (Belgium (27% of sales), Germany (29%), France (31%), and Nordics (13%) through a portfolio of leading heritage consumer brands (mainly in ambient soups, sauces, stews and bouillons & fonds).CF is known for iconic brands such as Devos-Lemmens, Royco, Aiki, Liebig and Erasco. All Continental Food’s brands have market-leading positions and strong local brand awareness in their home market. CF employs c.1,100 FTEs and operates five production sites in Belgium (Puurs), Germany (Lübeck & Kaltenkirchen) and France (Le Pontet & Liévin). It has c€400m of turnover.GBfoods, owned by Agrolimen, is a Spain based consumer foods business specialised in daily meal products in Spain, Italy, Netherlands, Russia, CIS Republics, in 30 countries in Africa and the Middle East, through prestigious brands as Gallina Blanca, Star, Grand'Italia, Jumbo and Gino. GBfoods has a similar strategy in terms of creating & maintaining strong local brands. GBfoods has over €800m of turnover.The combined CF/ GBFoods business now has c€1.2bn in turnover across Europe and Africa and is a key actor in the European consumer food landscape.

Deal rationale:
CVC Capital Partners acquired CF in October 2013 from Campbell for a total consideration of c€400m. Campbell’s divestment was driven by its strategic choice to reshape its portfolio by focusing more on global brands.At the time of the acquisition by CVC, CF was an orphan asset within a large international group. CF had a large number of local brands that while they intrinsically had strong brand power, were in need of revitalisation as they had been underinvested (lack of innovation and brand support).CVC’s investment thesis was driven by the belief that next to global brands supported by large multinationals, the consumer (and its differences in culture & taste profiles) also required strong local authentic brands tailored to such local needs and taste profiles (“local hero brands”). As such, CVC saw strong potential in CF’s brands.During its 6 year holding period, CVC has managed to shift the business towards a model of sustained profitable growth. This was achieved e.g. by rejuvenating the core heritage brands to act as real category leaders in their respective markets of soups, sauces and meal enhancers (fonds & bouillons); SKU rationalisation by focusing on the core product ranges and what the customer wants; and operational efficiencies and procurement gains through investments in the manufacturing footprint.These initiatives led to increased operational performance and cash generation, which was reinvested in brand activation (advertising spent increased with 50% over the investment period), fundamental category innovation and new product development, resulting in a strong collaboration with the retailers. Furthermore, CVC also invested in external growth through three self-funded transactions fitting the local hero strategy (La Ferme d’Anchin, Lenas Küchen and Mrs Cheng’s) and expanding the product portfolio.CF’s EBITDA almost doubled over the investment period. From an organisational perspective, managerial focus was re-oriented towards a culture of accountability, a sound entrepreneurial spirit & a restored ‘can do’ approach with employees being proud on their company. CVC also supported management in its corporate social responsibility focus and overall stakeholder value creation.Last year, CVC decided it was the right time to find a long-term future partner for the revamped Company to enter the next phase of its growth strategy. CVC initiated informal exit discussions with several parties, identifying Agrolimen/GBfoods as the right new owner which resulted in a transaction over summer 2019.GBfoods and CF are very complementary in terms of brands, products, geographies and culture. They have a similar approach towards positioning the brands and product categories. Both groups are fully complementary in terms of geographical scope with minimal overlap, giving space to the local brands to pursue further growth in its own markets without the risk of cannibalisation. The enlarged product portfolio also allows for potential cross-selling. Both groups also have a culture of excellence and continuous innovation which promises to accelerate the growth of the new pan-European group.

What is the impact of this deal for the company?
The acquisition of CF by GBfoods presents ample opportunities for CF:
• The deal leads to an even better business by an enhanced geographic scope, product portfolio and customer base, supported by complementary teams with a shared vision on local brands.
• The potential to cross sell categories & share best practices as both companies can learn from each other (e.g. recipes, quality, operations, category management, innovation…).
• Cultural – the brands of both CF and GBfoods are customised to the local taste, needs and preferences. This requires the companies to cherish local tastes and create an atmosphere where cultural differences are considered as a key selling point.
• Further roll-out of M&A as both companies are well-versed in add-on acquisitions.
• Strategic and long term investor – CF’s acquirer is a group with a long term profile and Agrolimen is family owned. 

What is the impact of this deal for the direct stakeholders?
Different stakeholders benefit from the deal:
• Seller – the deal has led to a strong ROI for CVC (deal value increased from c€400m to c€900m (rumoured)).
• Buyer – GBfoods has acquired a complementary consumer food company, which enhances its geographic and product scope and helps it to accelerate its ambitious growth plans to create a leading consumer foods platform.
• Target – CF can further develop its strong positions in its key markets thanks to access to a wider product portfolio, the sharing of best practices and further buy-and-build without cannibalisation risk.
• Employees – through cultural similarities between both companies, the staff of CF will be able to transition into a new group with a similar state of mind and will be part of a greater platform with access to a broad talent pool.

What is the impact of this deal on the society?
The deal will create value for all parties involved. Employees, clients and shareholders will benefit from the strong complementarity and passion for local brands, excellence and can-do mentality. The combination is a good example of how two local groups can transcendent their own geographies to create a large group, without losing their own (local) character. For its consumers, the new group creates a counterbalance with local authentic brands adopted to local tastes as opposed to the global brands supported by multinationals. Finally, both companies are active corporate social actors that take actions that benefit broad stakeholders including society (e.g. through energy-efficiency measures, health promotion (lower salt), employee well-being, food distribution and community support).

Why does this deal deserve a nomination?
As one of the largest deals in Belgium the CF/ GBfoods deal is worth nominating because of:
• Overall value creation –> creating a better business: During its holding period, CVC has managed to get an orphan asset within a large international group back on a growth trajectory. Through brand investments, product innovation and category expansion, CVC with management created a number one player in its core geographies and products. During a period where the FMCG sector was focusing on global brands, CVC has chosen for CF to be an international local player, with brands that appeal to local tastes. As such CVC’s investment philosophy allowed the company to be agile, focus on the core, growits brands and as such become a better business for all stakeholders (shareholders, customers, suppliers, employees, society). This was also reflected in the financial performance with the EBITDA almost doubling over a period of over 5 years.

• Tailored exit process -> finding the right owner for the business: The process was not rushed into by CVC and several parties were considered in order to identify the right owner. The process included a soft and extensive market testing period and GBFoods was identified as the most suitable candidate. One of the items that brought GBfoods and CVC together in the search of a new owner was the strategic and cultural fit between CF and GBFoods. In the market sounding phases, both parties quickly felt that there was a good match and as such, a tailored exit strategy was developed that led to a very swift and seamless execution of the transaction, supported by management, the Company and its advisors and a successful outcome for all. At announcement the transaction was very well received by employees, unions, customers, etc., underpinning the success of the exit strategy.

Comments Panel of judges
In de volwassen voedselmiddelenindustrie is het lastig om robuuste groei te bewerkstelligen. Onder de vleugels van CVC kon er focus aangebracht worden en is GBFoods gemoderniseerd. Hoewel het verkoopproces, mede door politieke spanningen in Spanje, lang heeft geduurd heeft CVC een mooie exit kunnen maken. In de optiek is het een klassiek PE-verhaal waarbij er hard is gewerkt om waardevermeerdering te realiseren.  

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