Reckitt Benckiser baby nutrition carve-out likely to attract sponsors

Goldman Sachs has been hired to manage the divestment of the infant-food segment, which comprises brands Enfa and Nutramigen, one of these and two further sources familiar said.

Reckitt is hoping to fetch GBP 6bn for the unit, based on EBITDA of around GBP 350m-GBP 400m, although the figures have yet to be finalised given the complexity of the carve-out, one source said.

The sellside is pitching the business to sponsors, having failed to interest trade buyers including food giants Nestle and Danone, which both have baby-food verticals, one of the sources said.

Danone is an unlikely buyer given its instalment of a new CEO who is focused on turning the business around and is not in a position to make large acquisitions, a sector banker said. Nestle, meanwhile, could face antitrust issues in the US if it acquired Reckitt's brands, a fifth source familiar said. Around 50% of Reckitt's baby formula foods are sold in the US, according to its latest annual report.

Sponsors would likely take interest in the business given the sizable asset, one source said, adding that it is second largest brand in the US in its category. Suitors such as CVC, KKR, Advent and Apollo could consider the asset, a second sector banker said.

Baby food assets can attract multiples of 15x EBITDA, one source said. Comparables to the deal include Reckitt's USD 2.2bn divestment of its infant formula and child nutrition subsidiary in China to Chinese investor Primavera Capital Group last year, as reported by this news service.

Other benchmarks include Nestle's acquisition of Pfizer Nutrition in 2012 for USD 11.85bn, as well as Danone's acquisition of Royal Numico for EUR 12.3bn in 2007, the source added.

Valuation multiples in this category have come down since Nestle and Danone's respective acquisitions in the previous years when such assets could fetch around 20x EBITDA multiples, due partly to falling birth rates globally in recent years, as well as the limited financing now available because of the current market volatility, the source said.

Net revenue for Reckitt's nutrition segment, which includes its IFCN unit, grew by 0.6% to GBP 2.7bn. Meanwhile, IFCN's net revenue grew by 3%, according to the company's 2021 annual report.

Reckitt's disposals of its baby food business in China and globally is part of wider plans to reposition the business towards higher growth brands, it said, noting that it turned over 9% of its portfolio last year.

Reckitt and Nestle declined to comment. Goldman Sachs and Danone did not respond to requests for comment.

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