Nomad Foods eyes ‘beachhead’ in central and eastern Europe with ‘exclusive negotiations’ to acquire Fortenova’s frozen business
Frozen food group Nomad Foods has been riding high on a wave of organic growth as consumers in increasing numbers turn to its brands in the freezer aisle.
As CEO Stéfan Descheemaeker explained after the company’s most recent quarterly update, the coronavirus pandemic has acted as a ‘tailwind’ for companies like Nomad, who offer convenience and a long shelf life. And an aggressive rollout of Green Cuisine plant-based items across Europe is also helping to lift revenue.
Descheemaeker expects the company will be able to hold onto these new shoppers in developed European markets like the UK and Germany through increased advertising and promotion investment.
Indeed, he said, early signs are positive. “[As] the COVID-19 pandemic extends... it's increasingly clear that many of the new consumers went to our portfolio during the March, April and May months, are repurchasing of our brands and are recognising the value that frozen food has to offer,” the chief executive noted in November. “Our aim is to directly engage these new consumers through increased A&P investment in the coming months and to ultimately retain many of them in 2021 and beyond.”
But increased investment behind its core business – which counts household names like Birds Eye, Findus and Iglo among its stable - to support organic growth is just one strand of Nomad’s growth plan. The company’s management has also been candid about its ambitions to expand in the European frozen space through M&A, having recently geared its capital structure to support this strategy.
Descheemaeker explained that the company now has the necessary financial flexibility and balance sheet clout to pounce as and when the opportunity arises.
“Our capital structure is now realigned to our strategy of consistent organic growth coupled with complementary acquisitions within European frozen. We remain active on the M&A front,” Descheemaeker elaborated. “You have to be ready because you have to be flexible, you have to be prepared. And then from the moment an owner decides to sell, you have to be there, as simple as that. And that's what we're doing.”
Following on from the recently completed purchase of the Findus brand assets in Switzerland for approximately €110m, further evidence of Nomad’s M&A ambitions emerged this week, when it was confirmed that the company has entered into ‘exclusive negotiations’ to snap up the Frozen Food Business Group (FFBG) of Fortenova Group.
Strategic fit: ‘Creating a beachhead for future consolidation’
Confirming that negotiations are ongoing, Nomad said in a statement yesterday (11 January) that the proposed transaction is ‘aligned’ with management’s strategy of ‘complementing strong organic growth in the base business’ with ‘the acquisition of market leading frozen food brands across Europe'.
Fortenova’s FFBG unit includes a portfolio of ‘iconic’ local brands - like Ledo, Čitluk and Frikom - that operate across multiple categories, such as frozen fish, vegetables, ready meals, pastry and ice cream.
For its part, Fortenova, the Croatian agri-giant, was confident that it has found a home that will be able to nurture and grow its frozen food assets.
“Nomad Foods is a company with outstanding investment and operational track record that has a clear focus on frozen foods segment in Europe,” observed James Pearson, Fortenova Group’s chief financial officer.
“Fortenova Group’s ultimate goal, over and above maximizing value, remains to be the conclusion of a transaction with a strategic partner who will make the maximum contribution to the further development of the Frozen Food Business Group and recognise the full value and potential of this business and its people,” added Fabris Peruško, Fortenova Group’s chief executive officer and a member of the Board of Directors.
Importantly, Nomad said, the iconic local brands have high consumer awareness in Croatia, Serbia, Bosnia & Herzegovina and several other countries in Southeastern Europe. “The acquisition of FFBG would extend Nomad’s portfolio into new and developing European markets,” the statement noted.
Barclays Capital analyst Andrew Lazar believes the assets are a good fit, given Nomad’s strategic ambition to actively participate in the consolidation of European frozen food markets.
“From a strategic standpoint, Fortenova’s Frozen Food Business Group boasts significant leadership positions in frozen foods in the Balkans and is right in Nomad’s wheelhouse in terms of the company’s stated strategy to focus its efforts on frozen food assets in European markets,” Lazar observed.
Lazar, who said the deal could be valued at around €600m, added he would expect investors to view the acquisition as an ‘incremental positive’ for Nomad from both a strategic and financial perspective.
While the size of the agreement means it remains a mid-sized transaction for Nomad, as opposed to a transformational one, significantly, the company’s management indicated that it could open the door to further deal-making in the region, effectively “creating a beachhead” for “potential future consolidation within Central and Eastern Europe”.
But will the deal be done?
While upbeat on the strategic rational behind the agreement, Nomad was also at pains to stress that an agreement is yet to be reached.
“These discussions are preliminary and there can be no assurance that a transaction will be completed,” the group noted.
However, Fortenova Group struck a more confident tone. The regional agri-food giant revealed that the due diligence process is now complete, allowing the companies to initiate the ‘next phase’ of negotiations. The company set out a timetable for completion, which is expected this summer.
“I expect the next phase of the Frozen Food Business Group sale process to be completed by the end of Q1 this year through the signing of a Sale and Purchase Agreement. If so, the transaction could be completed post receipt of regulatory approvals, as early as summer 2021,” revealed chief executive Peruško.
Whether or not Nomad is able to ink this acquisition, what remains clear is that we can expect further aggressive M&A activity from the frozen food expert in Europe.