KKR, Bain among suitors for Unilever's tea business

Cinven, Blackstone, Apollo, CD&R and CVC are among the other sponsors considering bids for the suite of tea brands, which includes PG Tips, Lipton, Pukka and T2, one source said. Some sponsors could leave the process early given the expected competition between the many suitors, a third source said.

KKR, CVC, Bain, Cinven, Blackstone and Apollo declined to comment. CD&R did not respond to requests for comment.

The asset for sale, as guided by Goldman Sachs and Centerview Partners, is being marketed at an EBITDA of EUR 263m, one source said.

Sponsors have had preliminary conversations with Unilever's management, one of the sources added. They are expected to submit their first round bids by late September, said two sources, with one adding that 20 September is the submission date. Those who make it through will be given the opportunity for more in-depth consultation with management, one of the sources added.

Trade bidders have yet to show much interest, one source said. Although the business is cash generative, it lacks growth and appears to have little strategic value for them, he said. However, they could turn up in the second round should they find an interesting angle, another source said. Japanese beverage groups Suntory and Ito En are potential suitors.

The sale is part of a dual-track exit process. A sale could realise 11-13x EBITDA, while an IPO could fetch 14-16x EBITDA, one source said. Dutch coffeemaker JDE Peet's is a comparable business, as reported. JDE Peet's is trading at 12.4x 2020 EBITDA and 12.2x 2021 EBITDA, according to Dealreporter analytics.

Despite the valuation gap, Unilever is likely to prefer an outright sale over an IPO given that it could take up to three years to make a total break via the latter route, with the risk of a share-price drop during that period, one source said. Sponsors are showing enough interest to justify a sale, another source added.

However, a question for any bidder is how it might turn around the black-tea and speciality-tea business given its low growth, one source said. Moreover, inflation throughout the supply chain, from commodities to logistics, threatens margins, another source said.

The appeal for a sponsor, though, is that it could use the business as a platform to then acquire other healthy-drinking assets and change its focus, another source said. Unilever sold its low-growth spreads business to KKR for EUR 6.8bn in 2017; KKR then rebranded it as Upfield, positioned it as an on-trend portfolio of plant-based products, used it to make acquisitions, and is reported to be considering an IPO, through which Mergermarket calculated it could realise EUR 9.4bn.

Unilever stated in its half-year results that its tea unit posted high-single-digit growth in both price and volume, with growth in North America, Turkey, Europe and India. Price was driven by India, following significant raw-material inflation, although the Indian and Indonesian parts of the business are excluded from the sale.

Unilever did not respond to requests for comment.

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• Topics
• Buyouts
• Consumer
• UK / Ireland
• Bain Capital
• KKR
• Cinven
• Blackstone Group
• Apollo Management
• Clayton Dubilier & Rice