Food group IAWS has agreed to buy US baker Otis Spunkmeyer in a deal worth $561 million (€448 million), significantly enhancing its exposure in North America and adding to its earnings almost immediately. IAWS's shares jumped 7 per cent.
The deal, IAWS' biggest ever, gives the Irish group access to a whole new North American market of sweet bakery products, and also enhances its position in the fast-growing food services sector.
Owen Killian, IAWS's chief executive, said the acquisition fitted the group's strategy "like a glove". "We feel confident that the US is a good place to do business and that we can operate successfully there," he said. "It feels very right."
It was also welcomed by analysts who described the Otis business as very complimentary to IAWS's existing operations. "IAWS now has a really strong platform to grow in the large and dynamic US baked goods sector, a sector that will enable it to further stretch the scope of its operations there," John O'Reilly, an analyst at Davy, said in a note.
The shares rose €1.05, to end the day at €16.10.
Under the terms of the deal, IAWS will pay about $340 million in equity, with an additional payment of as much as $25 million to stock and options holders dependent on the group achieving certain milestones. Otis was formerly owned by Code Hennessy & Simmons and the group's management. Mr Killian said he had put in place a €950 million debt facility to fund the acquisition and any associated costs. He said it will leave the group with about €150 million for future acquisitions, although he admitted it would be unlikely to make any other large purchases for a while.
According to Mr Killian, IAWS first looked at Otis two years ago, but decided that the time wasn't right for such an acquisition then. Now, he said, the fit seemed "very right".
"Otis Spunkmeyer is an exceptional company with an outstanding performance record, a national distribution platform and a superb product range," he said, adding that it also offers a strong platform for future growth in the region.
In 2001, IAWS bought La Brea, an artisan bread brand in the US, and has since expanded the business substantially. Sales last year at the unit grew by 26 per cent. Mr Killian said one of the advantages of the Otis brand is that a large proportion of the sales come from the food service sector, whereas La Brea is much more focused on food retail.
Otis has more than 60,000 customers and offers direct delivery through 52 nationwide sales centres. It had revenue of $336 million in the year to the end of December, and operating profit of $29.1 million. Between 2001 and 2005, its sales grew by more than 9 per cent a year.
The acquisition is expected to be earnings enhancing from completion, which is scheduled for the end of the month. IAWS, which produces the Cuisine de France range, had pretax profit of €123.5 million in the year to the end of July and turnover of €1.56 billion.
