Dairy groups wishing to exploit improved market conditions
brought by world economic recovery should retain their appetite for
acquisitions - which saw the industry's deals double last year.
The rise to 124 in dairy sector mergers and acquisitions
last year, from 111 in 2012, reflected the fact that "true organic growth was
hard find", with weaker currencies lowering the impact of rising emerging market
sales, and revenue rises often down just to passing on high commodity costs,
"Many battle to avoid margin squeeze," the bank said.
"In an environment of slower underlying growth, mergers and
acquisitions are an increasingly attractive route to expanding or defending
sales and profits."
'Survive and thrive'
The appeal of deals remain even through underlying growth in
the world dairy industry "will pick up as economies pick up".
Growth in developed country markets will not return to the
rapid rates seen before the world financial crisis, and without the support
from "the rates of economic growth enjoyed in the heyday of the BRICs" – an acronym
for Brazil, Russia, India and China.
"In this context, mergers, acquisitions and joint ventures
will remain a key avenue to growth and profitability," the bank said.
"Those adept at acquiring and incorporating news businesses
into their fold will remain well positioned to survive and thrive in this
'Starting to become
The difficulty will come in finding deals with the number,
or scale, to significantly improve the fortunes of the large dairy groups which
have been fuelling the consolidation wave.
It has been three years since the last dairy mega-deal, the
takeover of Italy's Parmalat by French-based Lactalis, with high valuations and
the dearth of ready targets restricting activity at this level.
"With 'elephant deals' harder to come by dairy giants will
need to acquire or tie-up with more companies than in the past to sustain the
same rates of growth in the future."
However, there were signs of continued investment by Western
dairy groups in emerging markets, while in Asia, Chinese players are "starting
to become more acquisitive", encouraged by a "clear mandate" from Beijing to
China Mengniu acquired local peer Yashili last year, besides
taking a stake in China Modern Dairy, while Yili bought New Zealand producer
Oceania Dairy, and Bright Food bought control of Israel' Tnuva earlier this
The comments came as Rabobank unveiled its annual league of
the top 20 dairy groups, by turnover, headed once again by Nestle, with France's
Danone and Lactalis taking second and third place respectively.
Further down the list, Canada's Saputo, enlarged through
acquisitions including Australia's Warrnambool Cheese & Bitter, rose one
place to eighth, overtaking US-based Dean Foods, from which it bought coffee
creamers group Morningstar last year for $1.45bn.
China's Yili rose two places to 10th, overtaking
Anglo-Dutch Unilever and Japan's Meiji, which like peer Morinaga Milk, suffered
a dent to its revenues in dollar terms from the weakness of the yen.