The Brazilian private equity firm, 3G Capital Partners LP, is thinking of gobbling a food and beverage company to add to its market strength, and the company is well known for its well-studied acquisitions. The firm is out looking for potential targets that could give it control of even more of the world’s best-known consumer brands. News sources have confirmed that investors have pledged around $5 billion to a new takeover fund being formed by 3G which hints that the private equity firm will strongly hunt down a company which it could acquire to build its portfolio of products.
Let’s take a sneak peek into the matter and try to decipher what’s in store for 3G in terms of inorganic growth in 2015.
Looking into the past records
3G has been known to be in the acquisition spree in the past few years with the purchase of Heinz and Tim Hortons (THI, Financial) for a combined $36 billion being ranked as the second and fifth largest takeovers in the consumer and retail sector since the beginning of 2013, as per Dealogic data.
Earlier in 2010, 3G acquired Burger King (BKW, Financial), which was struggling with its sales, in a $3.3 billion buyout, and the fast-food chain has seen a turnaround since then. Under 3G, the food chain has shifted more profits out of the U.S. and into lower-tax countries. While about 57% of the company’s revenue came from the U.S. in 2011-2013, just 21% of the pre-tax income did.
For H.J.Heinz, the acquisition by 3G aided in aggressive cost cutting as the ketchup maker cut $700 million in costs in the year ended June 30 under 3G’s ownership and improved profits to 25% from 18% a year earlier.
A glance at the future takeover targets
As per a report recently published in The Wall Street Journal, 3G seems to be contemplating the possibility of buying an attractive food play such as PepsiCo Inc. (PEP, Financial) having a stock-market valuation of $140 billion and Campbell Soup Company (CPB, Financial) worth about $14 billion.
Given the massive and complicated structure of PepsiCo, it’s unlikely that the entire company would be taken over by 3G. Instead it’s expected that the takeover which could be at least four times as large as Heinz and Tim Hortons combined would be only of certain pieces of PepsiCo.
PepsiCo’s growing snacks segment looks like a potential prospect for the Brazilian investment firm given the uptick in volumes it has witnessed in the past several quarters. However, it’s also possible that 3G invests in the beverage section which has been showing weak signs of growth in the soft drinks industry. It might very well be well-positioned to turnaround the beverage section of PepsiCo, almost working on similar lines as it did when it successfully acquired Burger King in 2010.
Menawhile, analysts are opining that Campbell Soup which has a market cap almost one-tenth of PepsiCo’s could be regarded as a realistic option for a buyout. Campbell Soup shares are less expensive than PepsiCo’s currently trading at a one-year forward price-to-earnings multiple of 17.4x, while PepsiCo shares are presently trading at a multiple of 19x.
Partnering with big shots for takeover dreams
Reliable sources have confirmed that 3G Capital Partners is prepping up to acquire a food giant by partnering up with Warren Buffet’s Berkshire Hathaway (BRK.A, Financial) which had previously teamed up with 3G to purchase Heinz last year for $23 billion.
Warren Buffett is also said to have shown some interest in such a collaboration whilst commending 3G’s global ambitions. Speculations of Buffet making an acquisition in 2015 has been gaining steam, and through this partnership Berkshire might end up making its largest acquisition to-date this year.
According to the Wall Street Journal report, 3G might even end up teaming with beer giant Anheuser-Busch Inbev (BUD, Financial) for acquiring a part of PepsiCo in the pursuant months.
Last word
As 3G Capital Partners progresses to maintain its lead as one of the world’s biggest acquirers of companies, its setting its sights on potential targets that could be a part of it in the long run. But the company does study the acquired company well before any acquisition. Whether PepsiCo is the next buyout or whether its Campbell or some other food honcho is not very clear right now, but we need to stay tuned to find out who is ultimately acquired by the private equity firm and what advantages are meted out to the acquired company through such a well-planned venture.
