Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Deal watchers near and far: Nomad Foods is one to chew on. 

If you're reading this in the U.S., the name probably doesn't ring a bell, and that's because the $1.6 billion company has been rolling up European frozen-food brands. But last week -- and staying true to its name -- Nomad shares switched from the London Stock Exchange to New York. Also, its top shareholder is Bill Ackman's Pershing Square Capital Management. 

Turning M&A Into Value
Like most stocks this year, Nomad is down. But will its acquisition strategy impress U.S. investors?
Source: Bloomberg

Nomad Foods is an acquisition vehicle created by Martin Franklin and Noam Gottesman, and its role as an industry consolidator comes at a time when foodmakers are on a deal spree in a quest to find the right portfolio mix and growth. Global deal activity revolving around food hit a record $170 billion last year. Among those, Snyder's-Lance agreed to buy Diamond Foods for $1.9 billion, a combination that will bring together Diamond's nuts and Pop Secret Popcorn with Snyder's pretzels and Cape Cod potato chips. ConAgra, closing the book on a 2012 deal that turned sour, agreed to sell its private-label foods unit to TreeHouse for $2.7 billion. And in the biggest food merger ever, Heinz bought Kraft, creating an $89 billion ketchup and macaroni monster. 

Franklin's other businesses include Jarden, home to a bunch of consumer brands such as Sunbeam and Crock-Pot, and Platform Specialty Products, a chemicals producer. He's in the process of selling Jarden to Newell Rubbermaid for $13.2 billion plus net debt, a deal that was struck in December and rewarded Jarden shareholders with a 24 percent premium. Shareholders of Platform Specialty (which include Ackman) haven't been so lucky: As of Jan. 19, it was leading the worst-performing hedge-fund hotels, according to Bloomberg's Simone Foxman and Katherine Burton. Franklin also invested alongside Ackman in Burger King, which has since merged with Canada's Tim Hortons in a tax-inversion deal.

Deal Feasting
The food industry was one of the biggest contributors to last year's record deal volume, with nearly 1,200 transactions, which in total cost $170 billion.
Source: Bloomberg

The goal for Nomad Foods would be to emulate Jarden's successes. In April, Nomad bought U.K.-based Iglo Foods from private-equity firm Permira for 2.6 billion euros ($2.8 billion), gaining control of Birds Eye's European frozen vegetables and meats as well as the Italian operations of Findus, another frozen foods brand. In November, Nomad completed the acquisition of Findus's other European operations for about 500 million euros. In an investor presentation this month, Nomad forecast pro-forma adjusted Ebitda of about $403 million, using the $37.5 million midpoint of its synergies estimate.

Stefan Descheemaeker, Nomad's chief executive, said in an interview that he plans on doing more deals in the future: 

"We have engaged ourselves in consolidation of the frozen food industry in Europe, and I think it would be a mistake to stop. We plan to be consistent so that we can generate the synergies."

There's been some criticism of Nomad's strategy of using debt to buy slow-to-no-growth businesses. But during last year's merger wave, which left few industries untouched, transaction prices got pretty heated. So as a dealmaker, it could be smart to stray from the crowd and focus on the less obviously attractive targets that aren't quite as expensive, and which have room for margin improvement. These could be units of a much larger company where they are currently low-priority and would benefit from more management attention and resources under another owner. That may be especially true in Europe, where supermarkets are much more concentrated than in the U.S. and thus have more bargaining power with the manufacturers.

Nomad also proved it's not afraid to walk away from a deal that gets too pricey: It stood down last year in the bidding for Britain's Quorn Foods, which sold to Monde Nissin of the Philippines for around $833 million.

Descheemaeker stressed the importance of merger integration and says that Nomad would be drawn to businesses that could be turned into a consolidator of its category. While he couldn't comment on specific M&A candidates, he signaled that branching beyond frozen foods and Europe is a possibility, should the right opportunity come along.

Industry deal activity doesn't look to be slowing down, and there are some food brands that may be coming up for sale in Europe. One that comes to mind is Unilever's European spreads, which is speculated to be on the chopping block because its weaker sales are a drag on the company. (Although, Unilever has signaled that it won't sell the unit on the cheap either.) There's also U.K.-based Dairy Crest, a spreads business with a $1.2 billion market value that recently may have made itself an attractive takeover candidate by divesting its dairy operations. 

As Descheemaeker said at a November conference, frozen vegetables and fish are "nothing fancy, nothing glamorous." But hey, Sunbeam irons and Crock-Pot slow cookers weren't glamorous either.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net