It seems these companies have the following characteristics:
- making incremental acquisitions that are accretive to their earnings over time
- making those deals at the right price
- have strong cash flow to pay off debt after the acquisition and have under-levered balance sheet before the acquisition
- they pay off their acquisitions with their own cash flows and might not need to raise money on the stock market (issuing stocks) or the debt market (issuing bonds). Because they don't need to raise money in the capital markets, these companies are not likely to get attention from high profile brokers. (analysts might not follow them closely and you won't hear about them on the news very often)
Companies that have made such acquisitions recently:
- Convenience store operator Alimentation Couche-Tard Inc (ATD.B-T) acquiring assets from Statoil (ATD.B-T gained 68% over the last 52 weeks)
- Frozen seafood processor Highliner Foods (HLF-T) acquiring Icelandic Group (HLF gained 102% over the last 52 weeks)
- Enterprise software provider Constellation Software - they made 22 acquisitions in 2011. (CSU-T gained 55% over the last 52 weeks)
Blogger SPBrunner follow the stock and here is her blog:
http://spbrunner.blogspot.ca/2012/06/saputo-inc.html
As per SP Brunner:
The total return under this stock over the past 5 and 10 years is at 14.8% and 11.92% per year. The dividend portion of this return is 1.97% and 1.66% per year, respectively. That is dividends made up 13.33% and 13.96% per year of the total return. The capital gain portion of the total return was 12.82% and 10.26% per year, respectively.
Growth has mostly been good for this stock. The 5 and 10 year growth in revenue per share is 7.6% and 12.5% per year, respectively. Growth in EPS is 9% and 10% per year, respectively. Growth in cash flow is 9.7% and 13.7% per year, respectively. Growth in book value is 7% and 9% per year, respectively.
You can expect return of 10%-12% a year on Saputo. Saputo is well managed and their return on equity is in the range of 14% to 18% over the last 10 years. Debt to equity ratio before the acquisition is 0.71, Saputo does have the capacity to use leverage to make more acquisitions.Trailing PE of Saputo is in the range of 14x-25x over the last 10 years.The market does realize Saputo as a great company and their stock is not always changing hands on a discount.
SPBrunner also keep track of Saputo's number on a spreadsheet here:
http://www.spbrunner.com/stocks/sap.htm
Saputo's trail of acquisitions: (from Montreal Gazette)
1954 — Giuseppe Saputo and family, new immigrants with cheesemaking in their blood, start their business in Montreal in humble quarters. It begins to grow immediately as people outside the Italian community take to Italian-style pizza topped with mozzarella.
1997 — Saputo, with son Lino Sr. firmly in control, tries to buy Canada’s Ault Food Inc., but is outbid by Italy’s Parmalat. It would have cost more than $350 million to win Ault, and Lino Sr. said that was more than Ault was worth. Lino takes Saputo public at $17 a share and denies a brush with the Mob.
1998 — Saputo buys Stella Foods Inc., the fifth-largest U.S. dairy processor with 12 plants, for $563 million. Lino Sr. says Saputo’s goal is to become a global cheesemaker.
1999 — Saputo completes the takeover of two U.S. plants of Avonmore Waterford Group and Bari Cheese Ltd. in Vancouver and pays $483 million for Jos Louis and Mae West snackmaker Culinar, saving it from a U.S. takeover, moving the company beyond cheese for the first time.
2000 — Saputo Inc. makes another big deal with the $407-million acquisition of Dairyworld Foods, with several plants in Western Canada, from the Agrifoods co-operative. That creates Canada’s largest dairy processor and North America’s fourth largest. Saputo’s annual revenue hits $3.4 billion.
2003 — Saputo expands into Latin America with the $51-million acquisition of Argentina’s third-biggest dairy processor Molinos de la Plata SA, which exports to several other Latin markets and to Europe. Lino Sr. speculates a U.S. acquisition may get top priority next.
2004 — Lino Saputo Sr. hands over the job as chief executive to his second son, Lino Jr., formerly president and COO of the company’s U.S. division. Saputo rumoured to be eyeing Latin American assets of Europe’s Parmalat.
2006 — Saputo enters German market by buying a distributor of mozzarella, ricotta and mascarpone. It also bought Biscuits Rondeau in Quebec, saying it would back troubled Culinar and bring it back to profitability after a big restructuring.
2007 — Saputo buys Land O’Lakes’s U.S. West Coast industrial cheese business for $216 million U.S. to secure a long-term fluid milk supply and also the U.K.’s Dansco Dairy Products, a maker of mozzarella, for $12 million to fit with its European expansion.
2008 — Saputo buys the Nielsen Dairy division of Weston Foods (Canada) for $465 million to back up its fluid milk activities in Ontario and also Alto Dairy Cooperative (Alta), a U.S. mozzarella producer for $160 million U.S.
2010 — Listeria contamination prompts the voluntary recall of cheese from one of Saputo’s biggest Montreal plants. It contained the problem by closing down one line of production. About 150,000 kilograms of cheese are affected.
2011 — Saputo buys Fairmony Cheese Holdings, parent of the U.S. DCI Cheese Co., one of the largest U.S. cheese marketers, for $270.5 million U.S. Lino Jr. says the real focus remains on building a global presence in cheese and dairy products.
2012 — Saputo bolsters its position as North America’s second-largest dairy company with a $1.45-billion deal to buy Morningstar Foods.
Read more: http://www.montrealgazette.com/Saputo+timeline+long+road+steady+expansion/7645708/story.html#ixzz2E38PrLob
Canadian cheese maker Saputo (TSX:SAP) buys US dairy company Morningstar for $1.5 billion. Saputo is bolstering its position as North America’s second largest dairy company with this acquisition. Morningstar, a division of dairy industry leader Dean’s food had revenues of about CDN$1.6 billion and EBITDA of $153 million.
Saputo expects the deal to be immediately accretive to earnings. “After giving effect to the acquisition, the combined business of Saputo and Morningstar will increase the basic earnings per share about 11.5% over the Saputo stand-alone basic EPS of $2.53 for the 12 months ended Sep 30 2012.”
The net purchase price represents for Saputo a multiple of 7.9x Morningstar’s EBITDA and the cost of the transaction will be financed through a newly committed bank loan by Saputo. According to Canaccord Genuity analyst Derek Dley, the deal price is about eight times Morningstar's operating earnings, compared with Saputo's own trading multiple of 11x.
Morningstar makes a variety of dairy and non-dairy products such as creams, ice cream mixes, sour cream and cottage cheese. Its sales mix is 64 per cent foodservice and 36 per cent retail. With Morningstar, Saputo Inc. not only is gaining an important new platform for its U.S. business, but diversifying its U.S. offering to include other products than cheese, Saputo said. “In Canada, we have a lot of dairy categories. The Canadian platform is well diversified. In the U.S., we were more oriented to cheese manufacturing, but this will allow us to diversify more there as well,” he said. Lino Saputo Jr. – Saputo chief executive officer said he will be on the lookout for further acquisition s in the US.“This is a platform now for smaller-type acquisitions,” he said in an interview.Once Morningstar is fully integrated, Saputo will be generating about $1-billion (Canadian) of cash and carrying roughly $1.8-billion of debt, he said. “We still have the ability to easily add, after this acquisition, $2-billion of debt,” said Mr. Saputo.
Canaccord Genuity analyst Derek Dley said in an interview that Morningstar will likely allow Saputo to realize operating-cost savings but not to the same extent as with previous U.S. acquisitions, particularly mozzarella-maker Land O’Lakes West Coast Industrial and mozzarella and cheddar manufacturer Alto Dairy Cooperative. “I don’t think this will be as game-changing,” he said. Saputo has a strong balance sheet, allowing it to finance the deal through a bank loan rather than having to raise equity, he added.
- The Morningstar deal increases the depth of Saputo's operation in the US. Saputo will be diversifying its offering to include products other than cheese. After the acquisition, the US division will be the biggest in terms of sales. US operation of Saputo will be a mirror image of their Canadian operation after the acquisition.
- The purchase price of $1.6 billion represents the biggest ever acquisition for Saputo. The deal is accretive to the earnings of Saputo and will boost its annual EPS by 11%.
- The purchase price of the acquisition is not excessive. The price of 8 times EBITDA is lower than Saputo's own trading multiple of 11x.
- The Morningstar acquisition is strategic, it will be a platform for further acquisition by Saputo in the US.
- The balance sheet is under-levered and Saputo is raising debt to pay for the acquisition. There is capacity for additional acquisition with debt according to the management team of Saputo.
- Saputo have been a consolidator of the dairy industry and they have the desire to become the top 5 dairy processor of the world. Currently they are the top 12 th largest dairy processor in the world. Saputo have a track record of making good acquisitions.
http://money.ca.msn.com/investing/news/business-news/saputo-buys-us-dairy-producer-for-usdollar145b-1
http://www.montrealgazette.com/business/Saputo+billion+deal+based+Morningstar+Foods+most+expensive/7644660/story.html
http://www.theglobeandmail.com/globe-investor/saputo-buys-us-dairy-company-morningstar-for-15-billion/article5910616/
