By Jonathan Fuchs, Eden Yang, Lolade Oluko and David Summers (London School of Economics), Greis Gaeta, Federico De Rosa, Lorenzo Mirone and Riccardo Colombo (Bocconi University)
Photo: Nico Smit (Unsplash)
Overview of the deal
Acquirer: Mondelez
Target: Chipita
Total Transaction Size: $2B
Closed date: 26 May 2021
Advisors: Credit Suisse and Goldman Sachs
Mondelez, the American food conglomerate behind the beloved Oreo biscuits, is gaining a foothold in the baked goods industry through its recent acquisition of Chipita. Based in Athens, Chipita is known for its packaged croissants, biscuits and cake bars, with sales of close to $600m in 2020. It is not difficult to see a strong complementary relationship between the acquirer and target, as their brand loyalties in different parts of the world and selection of products offered can come together and appeal to an ever-greater consumer base with ever-changing tastes and preferences. Mondelez is seeking to tap into Chipita’s well-established customer base in central and eastern Europe. The deal will be funded with surplus cash balances supplemented by debt issuance. While the purchase price is several times Chipita’s annual sales, the deal is expected to be accretive upon closing. Acquisition multiples are expected to be around 3.5x last year’s revenues and 20x EBITDA before any cost and revenue synergies are accounted for.
Company Details: (Acquirer - Mondelez International)
Mondelez International (MDLZ) is an American food, snack, beverage and confectionery company operating in approximately 160 countries. It was spun out of the Kraft Company in 2012, and currently holds Cadbury, Ritz Biscuits, Belvita, Oreo and many other international snack brands in its portfolio. As of May 2021, Mondelez shares have experienced LTM growth of 9%, and the company’s revenues rose to $7.30B in January 2021 from $6.91B a year before. The company has a strong acquisitive strategy that helps it remain a competitor against other consumer packaged goods giants such as Johnson & Johnson and Mars Inc.
Founded in 1923, headquartered in Chicago, Illinois (USA)
CEO: Dirk Van de Put
Number of employees: 80,000
Market Cap: $89.15B (as of 03/06/2021)
EV: $107.16B
LTM Revenue: $25.89B
LTM EBITDA: $4.41B
LTM EV/Revenue: 3.95x
LTM EV/EBITDA: 18.02x
Company Details: (Target - Chipita S.A.)
Chipita S.A. is a Greece-based producer of salty and sweet snacks operating in the croissants and baked snacks category. Its flagship product is the 7DAYS croissant, an individually packaged baked snack. It has factories all over Europe, including countries such as The Netherlands, Greece, Germany, Bulgaria, Austria, United Kingdom, Poland, Russia, Romania, Turkey, Slovakia and Switzerland (2020).
Founded in 1973, headquartered in Athens, Greece
CEO: Spyridon Theodoropoulos
Number of employees: 5,800
Market Cap: N/A (privately held company)
EV: $2B
LTM Revenue: $580M
LTM EV/Revenue: 3.45x
Projections and Assumptions
Short-term consequences
The acquisition will offer an immediate improvement to the supply chains of Mondelez’s other portfolio brands through access to Chipita’s Central and Eastern European network; offering a clear cost synergy when expanding into the region. Excluding the meat-processing division of the target will suit the current portfolio of the acquirer, limiting the need for divestment through corporate spin-off activity in the future. Broadening the acquirer’s product range within the food and beverage space satisfies not only the consumer demand for such items but also takes on its conglomerate competitors, which include Kraft Heinz and Nestle. The consumer packaged goods space is known for its consolidation through regular large-cap M&A transactions, with the acquisition of Chipita serving as a strategic move to become the global leader in baked snacks.
The transaction is expected to immediately improve profit growth for Mondelez and will be funded through cash-on-hand and newly issued debt; the transaction is expected to be accretive.
Long-term Upsides
The acquisition of Chipita is expected to bring significant benefits to Mondelez, and indeed the deal has been concluded as fully consistent with the company's long-term strategies, chief among which is to broaden its product range and further extend its geographical reach.
Mondelez will achieve significant growth in the global snacks and bakery business through the addition of Chipita's iconic brands to its portfolio and by leveraging its strong international presence: the products are marketed in more than 50 countries (including the United States) and reach approximately two billion consumers.
In the future, this will result in strong growth of Mondelez International's business, primarily in Central and Eastern Europe, which is Chipita's core market.
This transaction will open up opportunities for innovation and co-branding in the future, to improve the quality of the products supplied to consumers and increase the group's profitability. Finally, the transaction is expected to result in a 7.3% upside in Mondelez's share price from current levels, with a target price of $68.3.
Risks and Uncertainties
Mondelez is acquiring Chipita to enhance its revenues deriving from snacks in the eastern Europe area, thanks to the strength of the acquired brand. Mondelez is strongly focusing on becoming the world’s leader in the snack industry, which has a value of approximately $427B, which has significantly increased in its growth rate due to the Covid-19 pandemic and the consequent lockdowns that forced people at home.
One of the biggest risks linked is the possibility of a slow-down in the growth of the snack industry, even though most analysts predict a value of 3.7% CAGR in the next five years globally speaking, together with the uncertainties connected to the area where Chipita has most of its brands, Eastern and Central Europe, that is not considered as one of the most growing in the next decade.
All this considered, Mondelez is considering in the acquisition the possibility to optimize its network distribution in the region and expand its products. Uncertainties are significantly present also in the sector of innovation and co-branding because Mondelez is thinking of expanding some of the most successful goods produced in the markets where Chipita is the leader in the share.
“Their iconic brands and significant scale across so many attractive geographies make them a strong strategic complement to our existing portfolio and future growth ambitions in Europe and beyond” - Dirk van de Put, CEO (Mondelez International)