Johannesburg - Questions have been posed about whether Bidvest, the JSE-listed diversified industrial group, overpaid for its €250m European gambit unveiled on Monday.
Bidvest bought food services firm Nowaco Group, which operates in the Czech Republic, Slovakia and Poland. The company was previously owned by JP Morgan Partners and Bancroft Private Equity.
Nowaco provides food catering services, transport frozen foods and supply canteens.
Bidvest said that the price was determined using a combination of its earnings for the six months to December 2008, and a tangible net asset value of approximately €72m.
"It's mildly earnings enhancing, so it seems a reasonable acquisition," said Barbara Price-Hughes, an analyst at BoE Private Clients.
"In terms of strategy, it is definitely in line with Bidvest's long-term view. There also appear to be synergies and a lot of goodwill in the business," she said.
"However, in terms of price, there will definitely be some questions posed to management."
Most often, the value of an investment in a business can only be accurately measured some time after the acquisition has been integrated. One measure of Bidvest's acquisition of Nowaco will be its contribution to profits.
Bidvest says Nowaco will contribute R88m to pro-forma headline earnings for six months, enough to make it instantly earnings accretive, said Mark Ingham of Ingham Analytics.
"The €250m will be financed 50/50 with debt and new equity. This means that approximately 13 million shares will need to be issued, 4% more than shares in issue," he said.
Working off the declared R88m, Ingham said it was 4% more than reported interim results.
"Interest for the six months would be approximately R45m pretax or R32m after tax. The pre-tax profit (assuming a South African tax rate of 28%) of Nowaco is thus R167m, which after interest on borrowings and tax reduces to R88m," he said.
On an annualised basis, Nowaco is therefore making around R335m in profits which means the acquisition would account for 6% of group trading profit, he said.
Ingham says this makes the purchase price around 11.5 times after-tax profits and roughly six times Ebitda (earnings before interest, tax, depreciation and amortisation).
That compares to Bidvest's earnings multiple of just over 10 and comprises a relatively slim purchase premium.
Strategic fit
The other question is whether the acquisition is of strategic benefit to Bidvest. The firm has focused strongly on food services, which account for about a third of profits.
Bidvest CEO, Brian Joffe, said that central and eastern Europe were strategic growth areas for Bidvest. This was despite the fact that industry is currently under considerable pressure owing to widespread recession in the region.
"The acquisition of the Nowaco Group marks another block in the internationalisation of our food service interests," said Joffe in a media statement on Monday.
"Once integrated into the Bidvest food services division, we believe it will contribute significantly to Bidvest Group performance over time," he said.
Bidvest's current food services offering includes 3663 First for Foodservice in the United Kingdom, the leading foodservice businesses in Australia and New Zealand, operations in Hong Kong and Singapore, as well as Caterplus in Southern Africa.
The transaction is still subject to clearance from the European Union's competition authorities.
- Fin24.com