M&A strategies can be as different as chalk and cheese

Eighteen months ago, Groupe Bel, the French cheese giant that's home to brands including The Laughing Cow and Boursin, unveiled a new business strategy that put plant-based alternatives of the dairy product at the heart of the company's future.

Bel's interest in diversification dates back almost five years, with the acquisition of the majority of MOM Brands, a France-based maker of fruity snacks in 2016.

In the autumn of 2019, Bel sought to build on that bid to grow outside conventional cheese with the announcement of plans to develop a "broadened portfolio of dairy, fruit, and hybrid products" including plant-based items.

Since then, Bel has announced a number of initiatives – both organic and inorganic – to support the strategy. The company has backed a dairy-free start-up in Israel and snapped up a majority stake in a fledgling plant-based business in France.

Bel has also launched a series of products, either plant-based dairy alternatives or hybrid offerings, including dairy cheese and ingredients such as lentils and chickpeas.

Conventional cheese remains central to Bel's business but the company has made no secret of its desire to tap into growing consumer interest in "healthy snacks", including plant-based alternatives, as it moves forward with what it calls its "sustainable growth strategy".

Reshaping a business does, however, often mean assets may move the other way and Bel has decided one of its major brands no longer has a future with the business.

Bel is in talks to sell its Leerdammer brand of hard cheese to fellow France-based dairy major Lactalis.

"In line with our strategic priorities, we continue to grow our business and take on three further market segments, namely dairy, fruit, and plant-based, and so reinforce our healthy-snacking, major-player position," Bel chairman and CEO Antoine Fievet said when the companies announced that they were in exclusive talks over a clutch of assets related to the brand earlier this month.

Under the terms of a memorandum of understanding, Lactalis is to acquire the Leerdammer brand, plus assets in the Netherlands, Italy, Germany, and Ukraine – Royal Bel Leerdammer NL, Bel Italia, Bel Deutschland, and Bel Shostka Ukraine.

Bel estimates Leerdammer generated €350m ($410.6m) in revenue from Leerdammer in the 2020 financial year, adding the brand's "sales and earnings have nearly doubled" since being acquired in 2002. The group did not provide further details on earnings.

Industry watchers tell just-food that the nature of the Leerdammer brand meant, in terms of product type, it sat apart from the rest of Bel's cheese products.

"Leerdammer is the only 'real traditional cheese' in Bel's portfolio, so it doesn't match with La Vache Qui Rit, Babybel, etc.," Preben Mikkelsen, of dairy consultancy PM Food & Dairy Consulting, says.

"Bel's strategy is to be the healthy snack to families, with a special focus on kids and teenagers. Here, Leerdammer does not fit in. It is for a more mature market segment. The core Bel products adding plant-based alternatives will fit perfectly as a healthy snack."

Mark Voorbergen, a Netherlands-based dairy industry consultant and partner at Claassen, Moolenbeek & Partners, echoes Mikkelsen's thoughts.

"The company has been happy with the Leerdammer business as it continues to perform quite well, but they decided they want to insert the funds resulting from the sale to strengthen or accelerate its new direction," he says.

Setting out the planned deal for Leerdammer, Bel said that the transaction "is perfectly in line" with its broad, overall strategy, in place now since just before the MOM Brands acquisition, "to bolster its positioning as a major healthy snacking player".

It added: "Against this backdrop, this latest deal gives Bel further opportunities to advance its product offering strategy on its three further key market segments, while also stepping up moves into high-growth future markets like Asia/Pacific and North America."

The deal, if finalised, will see Lactalis, a significant shareholder in Bel, buy the assets in exchange for most of its shares in the business. Lactalis owns just over 23% of Bel. After the completion of the transaction, it will hold a 0.9% shareholding in the business.

"With this asset sale deal, we reaffirm our independent family business model that gives us freedom to take a long-term view," Fievet said.

Could more asset sales be on the horizon? Voorbergen suggests not. "I think the remaining brands fit better in the 'cheesy'-type snack portfolio, are less dependent on fresh milk collection and are more made from dairy ingredients, so they match better with Bel's expertise," he says.

It wouldn't be a huge surprise if Bel decides to make further M&A moves in dairy alternatives. The company is watching the area closely. It announced last month that it had decided to back Big Idea Ventures, a venture fund and accelerator focusing on alternative protein, including plant-based cheese.

Bel has provided financial support to Big Idea Ventures' New Protein Fund, which is looking to launch an accelerator in Europe to follow similar programmes in New York and Singapore.

Seeking to underline how he believes Leerdammer has a bright future ahead, Fievet outlined the prospects for the brand under new ownership: "For Leerdammer, this deal means a unique chance to have the backing of Lactalis, [the] dairy-products world number one, which will have the wherewithal to support it for its upcoming challenges."

According to data from Rabobank, Lactalis became the world's biggest dairy company by revenue, usurping Nestlé, last year when it snapped up a clutch of cheese brands from Kraft Heinz for $3.2bn.

On buying Leerdammer, Emmanuel Besnier, Lactalis' chairman, said the company was "excited by the prospect of building on the growth of this iconic brand that people adore".

He added: "This deal gives us an opening into the Dutch cheese market and production in Holland via three manufacturing plants. The transfer to us of Bel's Italian, German, and Ukrainian sales subsidiaries will boost our facilities in these countries benefiting both Leerdammer and other Bel product sales on these markets."

The deal will see Lactalis distribute Bel brands in Germany, Italy, and Ukraine.

Voorbergen argues that the acquisition will boost Lactalis in a part of Europe where the company perhaps needed strengthening.

"The Benelux has been a relatively weak region for them, so I think it gives them a nice new entrance with a lot of retailers and a new space on the shelves – yellow cheese – in these countries, which opens up for other Lactalis brands and products as well," he says. 

"I think Leerdammer is still one of the strongest and most attractive brands in Gouda/Emmental-type cheeses with a nice geographical spread across the Benelux, Germany, and France in particular. And successful brands are rare in this category.

"A weakness is probably that most of the growth happened in the 90s and [Leerdammer] has reached sort of a mature status where growth – if at all – is much more modest. The other way around, I think that Lactalis can open up new markets for Leerdammer as well, North America in particular."

The planned deal over Leerdammer is subject to regulatory approval. The companies expect the transaction to be finalised this summer.

It is the latest in a series of acquisitions made by Lactalis in more developed markets. In between the deal with Kraft and the proposed Leerdammer transaction, in December Lactalis moved to buy Canadian yogurt business Ultima Foods from local co-op Agropur.

Recently, the thrust of Lactalis' deal-making has been in emerging economies, buying businesses in markets as diverse as Brazil, India, Egypt, and Lebanon over the last two-and-a-half years.

The privately-owned giant has an appetite for acquisitions, even in markets where growth rates in conventional cheese may be relatively low, with the traditional dairy product still dwarfing the nascent areas of plant-based alternatives.

Above all, what the proposed deal for Leerdammer shows is the different opportunities that different companies believe lie ahead in the ever-evolving market for dairy and its fledgling alt-dairy counterparts.

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