Olam International sells 25% stake of its packaged food business to Japan-based Sanyo Foods for $187.5m. The partnership is aimed at expansion in Sub-Saharan Africa.
Singapore’s agri-business Olam may bump their profits to US$212.5 million should they record a $850.0m company value in financial year 2015. It is subject to achieving specific performance milestones.
“This strategic partnership is a win-win for both parties and an exciting step forward for our Packaged Foods business. Given our common vision for this sector and our strong working relationship over the past year, Sanyo Foods is a natural choice as a strategic partner,” said Mahadevan Ramanarayanan Olam’s president and global head of packaged foods in a statement.
The companies chose Sub-Saharan Africa for their joint-venture because of the predicted population, consumption and gross domestic product (GDP) growth for the next two decades as well as increased urbanisation of that region.
"Africa has the world’s fastest growing population and the fastest growing middle class – 62% of the population in Africa is under 25 years, while the World Bank estimates that by 2020 more than 50% of African households will have discretionary spending power. So, as opportunities in the consumer goods market are increasing, many others are also now recognising them," Ramanarayanan told Food Navigator.
The companies also believed that as an early entrant would be able to shape industry development and erect entry barriers.
"With each passing year the cost of entry, acquisition and brand-building grows manifold, which puts early entrants such as Olam at a great advantage, Sanyo’s expertise and insights in emerging markets just makes this opportunity even stronger," Ramanarayanan added.
It's (not the first) time for Africa
It is not the first partnership between the companies. Sanyo, Japan’s third largest instant noodles producer, already owns 25.5% stake in Olam’s instant noodles business. Nor is it the first time the two are planning to enter the African market. Olam has been present in Africa for 25 years and together with Sanyo they have been selling instant noodles in Nigeria and Ghana since 2013.
"With Sanyo’s noodle expertise this meant we could grow the instant noodles business at a much faster rate, bringing out new flavours and new products. In particular, we focused on developing flavours that corresponded to well-loved Nigerian local dishes, coming up with innovative formats in the noodle cake and also how we could make the product more convenient given the Nigerian and Sub-Saharan context.
"Just over a year later, we’ve seen the benefits of the partnership exceed our expectations and hence both partners wanting to expand the JV across the wider Packaged Foods Business," said Ramanarayanan.
Olam is present in Africa in nine packaged food sectors: candies, tomato paste, seasonings, noodles, milk powder, juices and dairy drinks and is a market leader for seasoning and candies.
The deal's completion was planned for September-December 2014, according to Reuters .