Deal will treble Irish group’s US sales and gives it bite of food services market

OF the $561 million IAWS is paying to acquire Otis Spunkmeyer, close to $196m is in acquired debt.

To complete the deal IAWS is paying $340m initially to be followed by a further $25m, provided certain targets are met by management, who are staying with the group.

This deal trebles the Irish group’s sales in the US and gives it critical distribution in food services area.

In 2002, the acquisition of La Brea gave it access to the high end of the artisan bread market, where La Brea is the leading brand.

With over 80% of Otis Spunkmeyer’s sales in the food services sector the markets sense the cross distribution opportunities this deal presents in a highly competitive and rapidly evolving market.

Accordingly earnings for this year and next have been revised up by Goodbody Stockbrokers and J&E Davy.

In the past the group’s former chief executive, Philip Lynch, stressed the key role distribution would play in the roll-out of IAWS’s lifestyle food brands in the US.

La Brea laid the foundations in 2002 and with this latest deal IAWS has achieved access to 62,000 food service and retail customers across the whole of the US. Those 62,000 clients are a massive add on to the group’s existing distribution and are of huge significance in the context of the overall future strategy of IAWS in the US.

It adds to the La Brea distribution network, which already services most of the US from its original Los Angeles plant and to which it added a substantial facility on the East Coast.

However, Otis Spunkmeyer brings a much wider network to IAWS because of the deep roots it has in the food services sector.

Forecasters feel earnings growth will probably rise to 12% this year as a result of the momentum being built up by IAWS in the US.

Following on the new deal the US will now account for about one-third of group earnings marking it out as an increasingly significant part of IAWS’s emerging global strategy.

Otis Spunkmeyer has four manufacturing facilities in California, Texas, South Carolina and Pennsylvania.

Food analysts John O’Reilly of Davy Stockbrokers and Liam Igoe of Goodbody Stockbrokers, leading Irish food analysts, said the potential for significant synergies now exist for the Irish group in the US as a result of this latest deal.

“We estimate that it can add 2c to this year’s forecast earnings per share, which is being revised to 92c. For next year we are raising our EPS forecast by 5c to 104.5c,” said Mr O’Reilly.

IAWS chief executive Owen Killian was bullish yesterday about the latest development.

“It confirms our enormous confidence in our ability to business in the US,” he said.

Statistics show the convenience food sector and the food-to-go savoury and confectionery sectors are expanding markets. They have been growing and expanding for the past 30 years, he said.

This month the US population will hit 300m, up from 200m in 1967.

By 2043 that figure will have tipped 400m, if current forecasts hold, offering further opportunities to the group to exploit the cash rich, time poor syndrome that continues to impact people’s lives, he said.

“For the machine we are putting together and the management that we have this is a great move by IAWS. This is a step up in the evolution of the group,” he said.