The Kohlberg Kravis Roberts-backed French malt company InVivo has launched a buyout proposal for United Malt, with Goldman Sachs believed to be working on the offer.
Providing defence advice is Macquarie Capital.
The company was placed in a trading halt on Monday, pending news about a change of control proposal.
KKR bought a minority stake in Malteries Soufflet, a leading malt industry producer, in 2021.
This was along with Bpifrance and Credit Agricole Group, injecting EUR440m into the company.
That company was later purchased by InVivo, a leading French agricultural and agrifood business for $US2.5bn ($3.76bn).
Shares in United Malt closed on Friday at $3.33 with its market value at $1.02bn, and in January last year, its share price was about $4.50.
For the year to September 30, United Malt delivered a 20 per cent fall in its net profit to $11.6m.
Its earnings before interest, tax, depreciation and amortisation fell 20 per cent to $91.8m.
DataRoom reported in August that private equity firms had been once again sharpening their pencils over United Malt after its share price sunk to its lowest-ever level following a profit downgrade.
At the time, it was forced to fend off suggestions an equity raising was needed.
Parties started exploring the possibility of buying the business and started speaking to investment banks around the market.
In recent weeks, the share price dipped before recovering slightly.
Supply chain disruptions, the cost of importing barley a worsening barley crop and general inflation were blamed for United Malt’s lower earnings guidance last year before its result.
It moved to between $100m and $108m for the year to September 30 compared with $115m to $140m earlier.
Ironically, when United Malt was spun out of GrainCorp several years ago, it was seen as the better-performing business.
Its shares were at the lowest level since it was demerged around August, trading at around $2.88 or $852m on a market value basis, and GrainCorp was firing on the back of a shortage of global grain supply and bumper crop conditions.
The Carlyle Group had also been running the ruler over the business earlier.
Around August, sources said a suitor may win the support to buy the business at about $4 a share.
The attraction for private equity is that many of the problems facing United Malt are industry-wide and likely to be short-lived.
But a challenge for private equity could be that earnings are cyclical – if it increases production and too much malt enters the market, prices fall.
United Malt had been in talks last year with its banks over its growing debt pile linked to high barley costs – its debt briefly was to be over its target range of between 2 and 2.5 times before returning to its targeted range this year.
Tanarra Capital, set up by activist investor John Wylie, owns a 10.8 per cent interest in United Malt.
United Malt is among the four largest malt businesses in the world.
InVivo’s Malteries Soufflet is the second-largest maltster behind Boortmalt, employing 1,200 people, spread over four continents, with 28 production plants and an annual production of 2.4m tonnes.
InVivo has been on the acquisition trail as part of its aspirations to grow Malteries Soufflet, buying in January one of Belgium’s oldest malt companies, Castle Malting.
Analysts at Citi in December had tipped InVivo as a potential buyer of United Malt, as reported by this column at the time.
This was after reports suggested its target was to double its malting capacity over five years, targeting acquisitions in the US, Australia and other regions.
At the time that InVivo purchased Soufflet, it had said that their strategy was to bring together their grain trading activities while also uncovering value in complementary businesses with limited overlap, including Soufflet’s flour milling and malt production and InVivo’s wine distribution.
Citi analysts said United Malt was a likely target for InVivo because of its existing capacity in the North American and Australian markets, the quality of its assets and the cheap market value relative to the earlier malt transaction at 12 times earnings before interest, tax, depreciation and amortisation (EBITDA).
Cargill Malt was sold to French company Axereal for about 12 times.
A deal could take InVivo’s malting capacity to about 3610 kilotonnes a year and make it the largest commercial maltster.
The analysts said they viewed United Malt as a high-quality reopening play, with the company’s malt-processing capacity set to recover to pre-Covid-19 levels by the 2023 financial year.
It would be driven by the continued recovery in on-premise beer consumption in the US and Asia and with Scotch whisky exports.
EBITDA was expected to grow at about 17 per cent on average to the 2024 financial year due to the market recovery, capital spending on an expansion in Scotland and benefits from the company’s transformation program.
GrainCorp acquired United Malt in 2009 for $757m.
Most of United Malt’s customers are craft brewers, while major domestic brewers account for about 25 per cent, and major international brewers about 28 per cent.
It generates 61 per cent of its revenue from North America and 17 per cent from Europe.
Other large industry players are Cargill, Malteurop and France’s Boortmalt, backed by Temasek out of Singapore.
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