Strauss Group to Float Coffee Unit on Wall Street

Goldman Sachs and Citigroup have been tapped as lead underwriters for the sale, which is planned for Wall Street in the middle of next year.

Send in e-mailSend in e-mail
Send in e-mailSend in e-mail

Strauss Group is planning to float its Strauss Coffee division on Wall Street, after its partner in the division, Texas-based private equity firm TPG Capital (25%) said it wanted out. TPG paid $293 million for its stake in September 2008.

Strauss Coffee, the food group’s largest and most profitable division, is the fourth largest coffee company in the world.

Goldman Sachs and Citigroup have been tapped as lead underwriters for the IPO, which is planned for mid-2014.

Strauss Group said in a statement Sunday that it was exploring options to let TPG divest its holding, but it was not immediately clear if the private equity firm was selling in the IPO, if the parent company was selling shares, or if the division was raising extra funds.

TPG Capital, formerly known as Texas Pacific Group, had a two-year option to boost its stake to 35% at a market value of $1.44 billion, but in 2010 it chose not to buy amid tax issues and Strauss Coffee’s declining profitability at the time. The tougher business environment stemmed from dearer raw materials, a worsening business climate in Eastern Europe and stiff competition in Brazil - Strauss Coffee’s most important market.

Strauss Coffee had a global market share of 3.3% last year, according to market research firm Euromonitor. It is the leading coffee company in Brazil, where at midyear it had a 21.1% market share, up from 20.7% a year earlier.

In the first half of 2013, the company improved its profits in Brazil after it began reaping synergies from mergers and acquisitions. There were also efficiency measures at its Frisco juice powder facility, a loss-maker in the past.

Strauss also improved its profitability in Russia after it leased a freeze-dried instant coffee plant in Germany, positioning it to address stiff price competition during the first half of this year from U.S.-based Mondelez and Switzerland’s Nestle. These steps led to sharp increases in Strauss Coffee’s operating profit and earnings before interest, tax, depreciation and amortization, which rose 43% in the first half to NIS 247 million.

This made up 12.5% of turnover compared with 8.5% in the same period last year, despite a 2.5% decline in sales to NIS 2 billion. The sales decline, however, stemmed from the shekel’s appreciation against the Brazilian real.

Strauss Coffee is also supported by its Israeli business, which in the first half of this year posted EBITDA of NIS 60 million, 16.5% of turnover, providing 24.3% of the company’s EBITDA even though its Israeli sales only represent 18.3% of the total.

The planned IPO comes amid consolidation in the global coffee sector and good profits by Strauss’ competitors. One competitor, U.S.-based Green Mountain, is trading at an EBITDA/EV multiple, a measure of return on investment, of 9.1, while the figure for Mondelez is 13.9.

If Strauss Coffee does not have major debt, and given its EBITDA of NIS 463 million over the past 12 months, it should conduct its public offering at an enterprise value of between $1.2 billion and $1.8 billion.

Strauss Coffee’s book value at the end of last year was NIS 1.785 billion, after it paid NIS 344 million in dividends between 2009 and 2012 and wrote down the value of TPG’s investment in the coffee venture to $265 million.

Strauss Coffee accounts for about half the group's total sales.Credit: Bloomberg

Click the alert icon to follow topics: