Will companies in the emerging markets of the East become more regular buyers of firms in the West?

It is a question that has caused debate in M&A advisory circles and in the industry over the last decade and it has intensified during the downturn, with markets like India and China growing at rates that countries in the West can only dream of.

In 2000, Indian conglomerate Tata acquired UK tea maker Tetley, a deal that in some ways for the first time emphasised the growing economic power in the East. In 2007, Tata bought British Steel and a year later, it snapped up car manufacturer Jaguar Land Rover. It is now the UK's single largest manufacturer.

Nevertheless, there has not been a wave of transactions, particularly in the FMCG sector. Some deals have been made - China's Bright Food acquired Australia's Manassen Foods last year, while in 2010 European seafood brands including John West in the UK, Petit Navire in France and Mareblu in Italy moved into Thai hands when private-equity group Trilantic Capital sold the brands' owner, MWBrands, to Thai Union Frozen Products.

However, to that list we can now add UK convenience food producer Adelie Food Holdings, which last week was sold to Indian leisure company India Hospitality Corp. (IHC) for US$350m. Adelie supplies products including salads, quiches and sandwiches to UK multiples including Asda, as well as supplying the foodservice sector and airlines. The deal is understood to be IHC's first major investment in UK.

Adelie said it wanted to take its "expertise" in chilled food to India and IHC, which has interests in the foodservice sector, is likely to want to use the UK firm's know-how to bolster its domestic business.

Analysts have said companies in the West have built up a lot of expertise in distribution, technology and manufacturing and groups in China and India may want to attain that knowledge for their own businesses back home - and could do that through acquisition. This kind of deal would support that thesis. There do, however, remain question marks over brand-led deals. Is it simply as easy as an emerging market powerhouse buying a branded business in the West and hoping consumers in their home markets take to its newly-acquired product portfolio?

The more traditional flow of investment from West to East, from companies in mature markets to emerging ones, of course continues. In the last two weeks, we have seen Nestle open a dairy plant in Chile, on which we will report in depth on just-food later today (16 April). Japanese snacks giant Calbee has also formed a venture to sell products in China. Meanwhile, in an exclusive interview, the chairman and CEO of Ebro Foods told us of plans to expand further internationally, including in India.

This week, in the UK, much of the industry's attention will fall on Tesco, which will report its annual financial results. The retailer, which is working hard to revitalise its UK business, will likely provide more detail on the new strategy for its domestic market. However, for all the clamour for the retailer to get to grips with its UK operations, investors would do well to remember that Tesco has built significant businesses internationally and they remain very important to the future of the company.

This week will also see the likes of Danone and Nestle kick off the reporting period for the first quarter of 2011. Industry watchers will be keen to hear just how food manufacturers are faring in still weak markets in the West and amid signs that food inflation is, in some cases, stubbornly high.

We will, of course, be providing our usual diet of daily news and insight on this - and more – in the coming week.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
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