Brazil’s JBS to pay $1.5bn for Northern Ireland-based Moy Park

Moy Park, the Northern Ireland poultry processor, has been bought by Brazilian company JBS, the world’s largest meat processor, for about $1.5bn (€1.3bn).

The deal will see JBS pay Moy Park’s parent company Marfrig, another Brazilian meat processor, $1.19bn (€1.05bn) in cash and assume Moy Park’s £200m (€280m) net debt.

Already a major player in the US, South America and Australia, the purchase of Moy Park will give JBS a significant foothold in the European market. It will also help to grow its added-value prepared food offerings, something which Moy Park specialises in.

The deal will be subject to regulatory approval by European antitrust authorities and is expected to be finalised in the third or fourth quarter of this year.

Marfrig

Since 2008, Moy Park has been in growth mode and has been one of Marfrig’s strongest performing businesses over the last number of years.

Moy Park was the jewel in Marfrig’s empire, accounting for more than 26% of group turnover, with the Craigavon-based processor reporting revenues of £1.4bn (€2bn) in 2014, a 2% increase on the previous year. Pre-tax profits stood at £10.9m (€15.3m).

Moy Park also accounted for 23% of Marfrig’s total group earnings in 2014, despite an adjusted earnings margin of 7.4% being below the Marfrig group average margin of 8.5%.

The UK and Ireland is Moy Park’s most important market, accounting for 78% of sales, and the company supports over 800 farmers, with 600 of them in Northern Ireland.

Last year, Moy Park successfully raised £200m on the bond market, which shows the confidence in the business by institutional investors.

So why has Marfrig decided to sell the business?

In November last year, Marfrig announced plans for a partial floatation (around 30%) of Moy Park on the London stock exchange in a bid to reduce some of the group’s high debt levels.

However, since the start of the year, the US Dollar has hardened by 17% against the Brazilian Real, inflating the value of the group’s dollar denominated debt, which stood at €3.9bn at the end of March 2015.

With the sale of Moy Park, Marfrig will now be able to reduce its net debt by more than a third.

Opportunity

For JBS, Moy Park presents the perfect opportunity to gain a significant foothold in the European market.

Over the last decade, JBS has pursued an aggressive and opportunistic acquisition strategy that has helped it gain worldwide scale.

Since 2009, revenue has increased by an average of 41.9% per annum as the company has expanded. Despite this sustained sales growth, the company has often struggled to return a profit.

In 2010 and 2011, JBS lost $82m and $104m respectively. Although the group does appear to have turned a corner and has made steady profits for the past three years, making a profit of $656m in 2014.

Originally a private family-owned company, JBS was floated on the Brazilian stock exchange in 2007. Since then, JBS’s main funding partner has been the Brazilian Economic Development Bank (BNDES), a state-owned investment bank which holds a 30% stake in JBS.

What does this mean for Moy Park?

JBS has a reputation for turning acquisitions around into well-managed, lean and efficient businesses. However, as Moy Park has been performing strongly in recent years, it may be a case of “if it isn’t broke, don’t fix it” for the new owners.

For the first time, JBS will have a significant processing footprint in the European market. If history is anything to go by, this could be the beginning of a targeted acquisition strategy for other processing businesses across Europe by JBS.