Del Monte Pacific's leveraged buy-out deal to create synergies

In brand ownership and cost savings.

Maybank Kim Eng notes that with Del Monte Pacific’s (DMPL) agreeing to buy its original parents in the US, Del Monte Foods’ consumer business, in a deal worth USD1.675b from its private-equity owners, the move will likely create synergies in the form of brand ownership and cost savings in certain productions.

Here's the full analysis from Maybank:

Turning the tables with this transformational deal. While we foresaw brand consolidation globally, we were pleasantly surprised by Del Monte Pacific’s (DMPL) ambition in agreeing to buy its original parents in the US, Del Monte Foods’ consumer business, in a deal worth USD1.675b from its private-equity owners. This will change the profile of DMPL dramatically, into a global foods company, owning one of the most iconic brands in the world.

Key Transaction Points. This is a leveraged buy-out, with USD930m of ring-fenced debt loaded onto the target business, and DMPL coughing up a further USD745m through a combination of equity/ debt financing. Based on latest financials, this works out to 9.4x EV/EBITDA (14.5x PER) which compares favorably to the most comparable recent transaction of Lucozade/ Ribena (13.5x EV/ EBITDA). Even in a bear case scenario, the transaction is significantly accretive.

We are positive on the synergies and long-term potential. We see a good fit between the two entities, as they operate in different geographies. The target business is also a major customer for canned pineapples export. Synergies would likely come in the form of brand ownership and cost savings in certain productions. Furthermore, there are pockets of opportunities such as the US juice market, fruit-cups, US Filipinos consumer for sauces and South America which is untapped.