An unprecedented wave of deals for Southeast Asian food and drink companies has traders betting the next targets will include chocolatier Petra Foods Ltd. and instant-coffee and cracker maker Viz Branz Ltd.
Buyers from Coca-Cola Femsa SAB to Heineken NV announced a record $10.4 billion of food and beverage purchases in the region in 2012, according to data compiled by Bloomberg. The acquisitions are likely to continue as rising incomes in Southeast Asia, where more than a quarter of the population is under 15, create brand-conscious grocery shoppers willing to spend more money, said consultant Frost & Sullivan.
Most of the region’s 650 million people will be middle class by 2020, and spending on food and beverages may climb at least 75 percent by then from 2000 levels, according to Accenture Plc. Petra, a $2 billion Singapore-based company that dominates Indonesia’s chocolate market, may appeal to overseas rivals, said DBS Group Holdings Ltd. Viz Branz, a $200 million maker of instant coffee and cuttlefish-flavored rice crackers, is likely to be bought by its second-largest shareholder, according to Oversea-Chinese Banking Corp.
“There’s clearly a lot of interest in consumer M&A” in Southeast Asia, Vincent Fernando, an analyst at Religare Capital Markets in Singapore, said in a telephone interview. “Any established company can acquire branded products and pump it through its distribution network. That’s what makes such an acquisition appealing.”
Petra rose 0.5 percent to S$4, a record, in Singapore trading today. Viz Branz gained 0.7 percent to S$0.69, while the benchmark Straits Times Index added 0.3 percent.
Consumer spending on food and beverages in Southeast Asia will jump to about $350 billion in 2020 from less than $200 billion in 2000, according to a 2011 analysis by consulting firm Accenture. Food and drink spending surpasses every other category, including housing and transport.
The number of households in the region with annual disposable income of between $5,000 and $10,000 -- designated as the lower-earning end of middle class -- will more than double to more than 50 million, with households in Singapore, Malaysia and Thailand wielding the most spending power, the data show.
“There will be a lot of activity in the region,” Satish Lele, a food and beverage industry analyst at Frost & Sullivan in Singapore, said in a phone interview. “The biggest driver is the ability of the consumer to spend more as wages keep on increasing.”
Already, acquisitions in the region have surged. Last year’s $10.4 billion in industry deals was up from $2 billion in 2011 and exceeded the previous three years combined, data compiled by Bloomberg show. The pace was largely driven by Heineken’s $6.4 billion takeover of Asia Pacific Breweries Ltd., which brews the namesake Dutch beer, Singapore’s Tiger and Indonesia’s Bintang.
Also among the buyers in 2012 was Coca-Cola Femsa, the largest publicly traded Coke bottler, which in December agreed to purchase 51 percent of Coca-Cola Bottlers Philippines Inc. for $689 million. It gained access to a nation that consumed 40 percent more Coke products than the worldwide average in 2011.
The deal total for last year doesn’t include the $11 billion takeover of Fraser & Neave Ltd., the Singapore real-estate developer that also produces soft drinks and ice cream, data compiled by Bloomberg show.
Still, it was the takeover battle for F&N that “invigorated interest in the sector,” said Lim Siyi, a Singapore-based analyst at OCBC. Thai billionaire Charoen Sirivadhanabhakdi last month won control of 130-year-old F&N after his bid won the backing of a majority of shareholders.
Companies from Japanese brewer Kirin Holdings Co. to Universal Robina Corp., a Manila-based consumer food group, have said they’re interested in acquisitions in the region. Universal Robina will consider acquisitions of brands as part of its expansion strategy, President Lance Gokongwei wrote in an e-mailed response to questions this week.
“We won’t rule out the possibility of acquisitions; however, there is no specific deal going on at the moment,” Kan Yamamoto, a Kirin spokesman, said in a phone interview yesterday.
Among potential targets is Viz Branz, OCBC’s Lim said. The company, whose products include CappaRomA coffee, posted all-time high revenue of S$173 million ($137 million), as well as record profit, in the year ended June 2012, according to its annual report. It holds the No. 3 position in Singapore’s coffee market with more than 9 percent of sales in 2012, according to data from Euromonitor International.
With plants in Singapore, China, Myanmar and Vietnam, Viz Branz said in October that Singapore-based Lam Soon Group, which makes cooking oil and the Isomax sports drink, bought a 20 percent stake. Lam Soon will probably bid for the rest of the company, according to Lim.
“We’re still optimistic that a deal is likely,” Lim said. “Viz Branz has a strong presence in Southeast Asia, particularly Myanmar and Vietnam, as well as China.”
Another target is Petra, which traces its roots to Indonesian chocolate brands SilverQueen and Ceres brands that were established in the 1950s, said Andy Sim, a Singapore-based analyst at DBS. Petra sold its cocoa-ingredients division to Barry Callebaut AG, the world’s largest maker of bulk chocolate, in December for $950 million. Since then, Petra shares have risen 20 percent.
Richard Chung, Petra’s head of corporate planning, declined to comment on the possibility of the company as a takeover target, citing the upcoming earnings release on Feb. 27. Officials at Viz Branz didn’t respond to phone or e-mail requests for comment.
Without that unit, Petra is left with a consumer business that makes it chocolate brands, which accounted for about one quarter of its $1.7 billion in revenue in 2011, data compiled by Bloomberg show. Still, the company holds the No. 1 position in Indonesia’s confectionery market, with more than 21 percent of sales last year, data from Euromonitor show.
“They are the Cadbury equivalent in Indonesia,” said Han Meng Tan, a Singapore-based analyst at DMG & Partners Securities Pte, referring to the British candy maker that was acquired by Kraft Foods Inc. for 13.6 billion pounds ($21 billion) in 2010. “They have conditioned the taste buds of about three generations of Indonesians.”
For buyers in Southeast Asia, the challenge will be to persuade companies to sell in the face of such business opportunities, said Religare’s Fernando.
“There are far more consumer companies looking for M&A rather than being willing to be a take-out,” he said. “Owners are mostly thinking about expanding the business and looking for targets rather than selling out.”
Shares of both Viz Branz and Petra have doubled in the past 12 months, ending at S$0.685 and S$3.98, respectively, yesterday. Still, Viz Branz has an enterprise value of 7.4 times its estimated 2013 earnings before interest, taxes, depreciation and amortization, the cheapest among beverage companies in Southeast Asia with market capitalizations higher than $100 million, according to data compiled by Bloomberg.
On the other hand, Petra’s multiple to estimated Ebitda this year of 20 times is more expensive than 93 percent of food manufacturing companies in the region, data compiled by Bloomberg show. The ratio is more than double the industry median, the data show.
Valuations of food and beverage companies in the region “reflect the faster growth from attractive demographics, growing middle class and increasing urbanization,” Universal Robina’s president Gokongwei wrote.
Still, the valuations may not deter buyers as they’re outweighed by the region’s potential and reflect the scarcity of targets, said OCBC’s Lim.
“Southeast Asia is going to be exciting over the next 10 years,” said DMG’s Han. “This is that part of the world where companies will have their presence.”