Dean Foods seen as target but interest may be lukewarm, sector advisors say
22 MAY 2018
- Turnaround of commodity-driven milk business calls for patient investor
- International strategics might face regulatory barriers
Dean Foods [NYSE: DF] could struggle to attract a buyer as growth challenges continue to impact the dairy market with the shift in consumer preferences toward plant-based options, according to four sector advisors.
The nation’s largest processor and direct-to-store distributor of fresh fluid milk has been on the radar screens of private equity firms and international strategics in recent years, these sector advisors said. Though widely viewed as a buyout target, the company is not known to be running a sale process at this point, according to the advisers.
Since 2017, the Dallas-based Dean Foods’ stock has lost more than half of its value, falling to USD 9.79 per sharefrom USD 21.78 per share as of 21 May 2018. In 1Q18, the company, with a market cap of USD 908.49m, reported a total leverage ratio of 2.68, with total outstanding debt at approximately USD 884m as of 31 March. Recently, activist Swiss firm VV Value Vals AG took a 10% stake in Dean Foods.
The nation’s largest processor and direct-to-store distributor of fresh fluid milk has been on the radar screens of private equity firms and international strategics in recent years, these sector advisors said. Though widely viewed as a buyout target, the company is not known to be running a sale process at this point, according to the advisers.
Since 2017, the Dallas-based Dean Foods’ stock has lost more than half of its value, falling to USD 9.79 per sharefrom USD 21.78 per share as of 21 May 2018. In 1Q18, the company, with a market cap of USD 908.49m, reported a total leverage ratio of 2.68, with total outstanding debt at approximately USD 884m as of 31 March. Recently, activist Swiss firm VV Value Vals AG took a 10% stake in Dean Foods.
Alex Jacobs, the former head of the food and beverage group at KeyBanc Capital Markets, has just been hired to take on a new business development role at Dean Foods.
Recent research reportedly conducted by Cargill reveals that while 67% of American adults regularly consume dairy, about half of them also buy vegan options. The global dairy alternatives market is expected to surpass USD 34bn mark by 2024, according to ResearchAndMarkets.com.
A turnaround of Dean Foods’ business would require an investor with a long-term vision necessary to ride out the milk market’s commodity price swings and grapple with the company’s massive physical infrastructure, the first sector advisor said. These factors suggest a sale to a patient investor, like a private equity firm, may be a more viable option for Dean Foods to fix its issues privately than to remain a public company, this sector advisor said.
Dean Foods, however, could also attract foreign strategic buyers, including companies in Asia and Brazil, some of the sector advisors said. In particular, Chinese companies like Bright Dairy & Food Company [SHA:600597] and the USD 26bn market cap Inner Mongolia Yili Industrial Group [SHA:600887], which have been on a buying spree for overseas dairy assets, could step in and take a look at Dean Foods, they agreed.
In 2016, Chinese beverage firm Hangzhou Wahah was seeking financing for a possible acquisition of Dean Foods, according to a Financial Times report. Last year, Inner Mongolia Yili made an USD 859m offer for Stonyfield, the US dairy subsidiary of French food group Danone [EPA:BN], but the organic yogurt maker ultimately sold itself to France-based Lactalis for USD 875m.
In 2011, Shanghai-based Bright Dairy & Food tried to buy a majority stake in French dairy company Yoplait with an approximately EUR 1.75bn (USD 2.06bn) offer. The company was eventually acquired by General Mills [NYSE: GIS] for around USD 1.2bn, which was lower than Bright Dairy’s bid.
A Chinese suitor, though, would face hurdles getting regulatory approval from the Committee on Foreign Investment in the United States (CFIUS), and could face questions regarding food safety concerns, some of the sector advisors said. Given these complications, it would be more likely for a Chinese group to partner with a US private equity firm for a buyout bid, they noted.
Dean Foods would likely fetch at least USD 2bn in the event of a sale, the sector advisors said. Dairy companies are going for at least 9x of EBITDA, according to the second advisor. The company generated adjusted TTM EBITDA of USD 324.5m for 2017.
Since Dean Foods has consolidated much of its manufacturing and milk production lines, it would be hard for the company to be split up, sector advisors said. For this reason, a sale of the entire company is more likely, the second advisor said. Its portfolio includes DairyPure, which calls itself the first and largest fresh, white milk national brand, and TruMoo, a leading flavored milk brand, along with regional dairy brands such as Alta Dena, Berkeley Farms and Country Fresh.
Another of the sector advisors said that Dean Foods trades at a low EBITDA multiple of 5.6x, and would likely expect a premium to be paid to that, but the dairy market is considered to be a melting iceberg. Health-conscious people are consuming fewer milk products, which would give some buyers pause about Dean Foods’ growth prospects. Last year, Dean consolidated a lot of its manufacturing capacity and made cost cuts, he said.
Not just Dean Foods, but the overall dairy market is struggling as big companies invested heavily in organic milk production yet customers have not met the forecast demand. Instead, they have leaned towards plant-based alternatives such as soy and almond milk, creating a production glut, the first sector advisor said. This has forced some companies to cut prices for organic milk, he added.
In 2012, Dean Foods announced the spin-off of its wholly-owned subsidiary The WhiteWave Foods Company, the maker of Silk Soy Milk, in a USD 300m IPO. In 2017, the unit was acquired by French diary giant Danone for USD 12.5bn for the plant-based portfolio.
Dean Foods is the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the US. It has more than 50 national, regional and local dairy brands as well as private label products, and makes and distributes ice cream, cultured products, juices, teas and bottled water.
Dean Foods did not return request for comments.
Dean Foods, however, could also attract foreign strategic buyers, including companies in Asia and Brazil, some of the sector advisors said. In particular, Chinese companies like Bright Dairy & Food Company [SHA:600597] and the USD 26bn market cap Inner Mongolia Yili Industrial Group [SHA:600887], which have been on a buying spree for overseas dairy assets, could step in and take a look at Dean Foods, they agreed.
In 2016, Chinese beverage firm Hangzhou Wahah was seeking financing for a possible acquisition of Dean Foods, according to a Financial Times report. Last year, Inner Mongolia Yili made an USD 859m offer for Stonyfield, the US dairy subsidiary of French food group Danone [EPA:BN], but the organic yogurt maker ultimately sold itself to France-based Lactalis for USD 875m.
In 2011, Shanghai-based Bright Dairy & Food tried to buy a majority stake in French dairy company Yoplait with an approximately EUR 1.75bn (USD 2.06bn) offer. The company was eventually acquired by General Mills [NYSE: GIS] for around USD 1.2bn, which was lower than Bright Dairy’s bid.
A Chinese suitor, though, would face hurdles getting regulatory approval from the Committee on Foreign Investment in the United States (CFIUS), and could face questions regarding food safety concerns, some of the sector advisors said. Given these complications, it would be more likely for a Chinese group to partner with a US private equity firm for a buyout bid, they noted.
Dean Foods would likely fetch at least USD 2bn in the event of a sale, the sector advisors said. Dairy companies are going for at least 9x of EBITDA, according to the second advisor. The company generated adjusted TTM EBITDA of USD 324.5m for 2017.
Since Dean Foods has consolidated much of its manufacturing and milk production lines, it would be hard for the company to be split up, sector advisors said. For this reason, a sale of the entire company is more likely, the second advisor said. Its portfolio includes DairyPure, which calls itself the first and largest fresh, white milk national brand, and TruMoo, a leading flavored milk brand, along with regional dairy brands such as Alta Dena, Berkeley Farms and Country Fresh.
Another of the sector advisors said that Dean Foods trades at a low EBITDA multiple of 5.6x, and would likely expect a premium to be paid to that, but the dairy market is considered to be a melting iceberg. Health-conscious people are consuming fewer milk products, which would give some buyers pause about Dean Foods’ growth prospects. Last year, Dean consolidated a lot of its manufacturing capacity and made cost cuts, he said.
Not just Dean Foods, but the overall dairy market is struggling as big companies invested heavily in organic milk production yet customers have not met the forecast demand. Instead, they have leaned towards plant-based alternatives such as soy and almond milk, creating a production glut, the first sector advisor said. This has forced some companies to cut prices for organic milk, he added.
In 2012, Dean Foods announced the spin-off of its wholly-owned subsidiary The WhiteWave Foods Company, the maker of Silk Soy Milk, in a USD 300m IPO. In 2017, the unit was acquired by French diary giant Danone for USD 12.5bn for the plant-based portfolio.
Dean Foods is the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the US. It has more than 50 national, regional and local dairy brands as well as private label products, and makes and distributes ice cream, cultured products, juices, teas and bottled water.
Dean Foods did not return request for comments.