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Weetabix buy highlights two-way nature of acquisition
By Fitch Ratings |
May 8, 2012, Tuesday
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Print Edition
Print Edition
THE acquisition of 60 percent of Weetabix by Chinese food producer Bright Food highlights the increasingly two-way nature of Western brand expansion into emerging markets.
Richer Western multinationals are seeking to push into emerging economies, both organically and via acquisitions, while emerging market companies want to acquire more capital-constrained Western businesses.
Stagnant growth in developed markets, combined with continued growth in emerging markets, has partly reversed the seemingly one-way trend of Western multinationals expanding into emerging markets that prevailed five years ago. We think this will continue as long as Western brands are still able to command a premium position among consumers in emerging markets - or provide other ways to drive demand - and emerging market companies remain cash rich.
Western companies with strong balance sheets, however, are still both willing and able to invest in China and other emerging markets, illustrated by Nestle's acquisition of 60 percent stakes in Hsu Fu Chi and Yinlu Foods late last year.
The likely success of the Weetabix deal and its related brands in China is uncertain. Weetabix still earns most of its revenues from the UK, with exposures in emerging markets negligible.
However, it will potentially capitalize on the slow, yet sustained trend in parts of Asia towards a more Western-style breakfast.
It will also be helped by Bright Food's retail presence, marketing and, critically in China, distribution resources. Bright Food has said it will use its resources to market Weetabix elsewhere in Asia and globally.
The acquisition also gives hope to some of the more challenged leverage buyouts that retain good brands, affirming expectations that brand value is measured by more than just ongoing cash generation. The partial sale of Weetabix by Lion Capital gives the sponsor both a partial exit and the ability to benefit from further potential upside from Weetabix's Chinese expansion.
While we would not draw a trend from the Weetabix transaction, Asian trade buyers may provide a ray of hope for leverage-buyout equity sponsors looking for an exit in the current lackluster European mergers and acquisitions as well as primary equity markets.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Richer Western multinationals are seeking to push into emerging economies, both organically and via acquisitions, while emerging market companies want to acquire more capital-constrained Western businesses.
Stagnant growth in developed markets, combined with continued growth in emerging markets, has partly reversed the seemingly one-way trend of Western multinationals expanding into emerging markets that prevailed five years ago. We think this will continue as long as Western brands are still able to command a premium position among consumers in emerging markets - or provide other ways to drive demand - and emerging market companies remain cash rich.
Western companies with strong balance sheets, however, are still both willing and able to invest in China and other emerging markets, illustrated by Nestle's acquisition of 60 percent stakes in Hsu Fu Chi and Yinlu Foods late last year.
The likely success of the Weetabix deal and its related brands in China is uncertain. Weetabix still earns most of its revenues from the UK, with exposures in emerging markets negligible.
However, it will potentially capitalize on the slow, yet sustained trend in parts of Asia towards a more Western-style breakfast.
It will also be helped by Bright Food's retail presence, marketing and, critically in China, distribution resources. Bright Food has said it will use its resources to market Weetabix elsewhere in Asia and globally.
The acquisition also gives hope to some of the more challenged leverage buyouts that retain good brands, affirming expectations that brand value is measured by more than just ongoing cash generation. The partial sale of Weetabix by Lion Capital gives the sponsor both a partial exit and the ability to benefit from further potential upside from Weetabix's Chinese expansion.
While we would not draw a trend from the Weetabix transaction, Asian trade buyers may provide a ray of hope for leverage-buyout equity sponsors looking for an exit in the current lackluster European mergers and acquisitions as well as primary equity markets.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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