Bart Becht’s $10 billion coffee run has a dash of Warren E. Buffett about it. The former Reckitt Benckiser boss is leading an agreed buyout of D.E Master Blenders 1753, the Dutch outfit behind Douwe Egberts. Like the Omaha superinvestor’s recent $23 billion move on Heinz, this deal blends consumer goods, cheap debt and private capital staked by billionaire families.
The 12.50 euros-a-share cash bid is worth about 7.8 billion euros including debt. That means Germany’s Joh. A Benckiser, or JAB, where Mr. Becht is chairman, is paying a full-looking 15.6 times forward earnings before interest, taxes, depreciation and amortization, based on Liberum Capital forecasts, for the world’s third-biggest coffee maker. Mr. Buffett paid 14.6 times 2013 Ebitda for Heinz. Counterbids seem unlikely.
Given the high purchase prices, it must be assumed that the ketchup, and now coffee, buyers are set to be long-term holders. Potential returns will be juiced by mountains of leverage, though. It helps that debt is cheap and abundant, as it can be if you borrow against secure consumer-industry cash flows. JAB will lift D.E Master Blenders’ debt from 258 million euros to 3 billion, or more than 6 times next year’s Ebitda. That would be too racy for European public investors â€" but is probably fine for a privately owned business.
In both deals, personal fortunes are being recycled back into the consumer sector, by patient families and entrepreneurs. Mr. Buffett bought Heinz with the Brazilian brewing billionaires behind Anheuser-Busch InBev. JAB is a vehicle for the Reimann family, major investors in Reckitt. JAB is also tapping some of ABI’s Belgian backers, and a Colombian brewing dynasty, for equity funding.
It’s not clear whether there are meaningful synergies with JAB’s cafe chains, Peet’s and Caribou. But Mr. Becht could consolidate coffee- and tea-making, much as ABI did in brewing. The market is fragmented. Targets could include Green Mountain Coffee Roasters or J.M. Smucker, or the privately held Orimi of Russia. Food conglomerate Mondelez, which owns the world’s second-biggest coffee business, may one day seek to sell out. And family controlled groups like Strauss, Tchibo or Illy might find JAB a sympathetic partner.
Growing global thirst for coffee should help too: Euromonitor forecasts 36 percent market growth in the five years to 2017, to $103 billion. It is hardly surprising then, that Mr. Becht thinks Douwe Egberts is worth a shot. Coffee-makers across the globe are in for a jolt.
Quentin Webb is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
