This week started with a new deal announcement already on Monday morning – that Mr Andrey Beskhmelnitsky has acquired the ice cream and frozen food business segments from Premia Foods AS. Given that Premia Foods is a company listed on the NASDAQ OMX Main list, a lot more details about the transaction than we are accustomed to have been disclosed to the public, including the purchase price consideration of EUR 27.1 million.

Mr Beskhmelnitsky first appeared on the Baltic M&A scene in 2010 by acquiring the controlling interest in Rigas Piena Kombinats AS, the largest Latvian dairy producer. This transaction was followed by an acquisition of Valmieras Piens AS, another leading dairy producer, in 2011 and merging of both operations after receiving clearance from the Competition Council. Mr Beskhmelnitsky’s knowledge of the dairy sector and credentials are impeccable – after all, as the CEO he had built Unimilk into a leading Russian dairy company and sold it to Danone in 2010. By consolidating the dairy sector in Latvia he actually dared to do what others had spent years just talking about.

Rigas Piena Kombinats and Valmieras Piens, on a pro forma combined basis, in 2013 had sales of EUR 160 million and EBITDA of EUR 367 thousand, or EBITDA margin of just 0.2%. The minuscule EBITDA has pushed the bank debt (amounting to EUR 28.5 million) expressed as an EBITDA multiple into truly stratospheric levels.

On the other hand, Premia Foods presents a completely different picture. Based in Tallinn, Estonia, and being publicly listed since 2010, it has expanded across the Baltics and into Finnish and Russian markets, while focusing on three business segments – ice cream, frozen goods, and fish farming and fish products. In 2013 the company reported sales of EUR 98.9 million, with EBITDA exceeding EUR 4 million. Its interest bearing financial liabilities remained well within the prudent levels of 4.0x times EBITDA. Its gross margins of 45% for ice cream and 24% for frozen goods compare extremely favourably to the modest 7.5% of Mr Beskhmelnitsky’s dairy producers on a combined basis.

According to public statements, Mr Beskhmelnitsky through his investment vehicles has agreed to pay EUR 27.109 million for the ice cream and frozen goods segments. On the basis of this offer, the transaction implicitly values the business at 0.5x times sales and 8.2x times its 2013 EBITDA. To compare, the whole company was valued at 0.4x times sales, 5.7x times EBITDA and 28.6x times earnings by the stock market as at the end of 2013.

Adding the higher margin product segments to the portfolio has strong strategic rationale, even more so now when Russia’s self-imposed restrictions of food imports are starting to hurt the milk producers. The newly acquired business lines will increase the revenues from Mr Beskhmelnitsky’s assets in the Baltics to EUR 213 million and EBITDA – to EUR 3.7 million, improving the EBITDA margin to a more respectable 1.7%.

Hieronymus Carl Friedrich Baron von Münchhausen, the famous recounter of tall tales and a resident of Latvia (we still have his museum in Dunte, by the way!), claimed once having lifted himself and his horse out of the mud by pulling on his own ponytail. Will ice cream do the same with Mr Beskhmelnitsky’s dairy businesses?


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