Acquisitive Canadian dairy co-op Agropur this month finalised its largest deal to date – its purchase of US cheese and dairy ingredients business Davisco Foods International. In part one of a two-part interview, Dean Best speaks to Agropur CEO Robert Coallier about the company’s most recent transaction.
Canadian dairy co-operative Agropur has been one of the most acquisitive companies in the food industry, let alone the dairy sector, in recent years. In the last year and a half, Agropur has struck nine separate deals – and perhaps its most recent transaction could be its most significant.
Two weeks ago, Agropur sealed its acquisition of US dairy group Davisco Foods International. First announced in July, the deal was struck for an undisclosed sum but, in one swoop, takes Agropur’s annual turnover from C$3.8bn (US$3.5bn) to C$5.8bn.
Davisco, which makes cheese and dairy ingredients for manufacturing and retail customers, is the largest acquisition in Agropur’s history.
The deal saw Agropur buy assets including three cheese processing factories and an ingredients plant in the US. Davisco also has sales offices in the US, China, Singapore and Switzerland, plus distribution centres in China and the Netherlands.
Robert Coallier, Agropur’s CEO, joined the company in February 2012 and has presided over a period of intense acquisition activity. Speaking to just-food after the deal for Davisco was signed, he lists the reasons why Agropur moved for the business.
The “most important” reason for the acquisition, he says, was it doubles the co-operative’s business in the US. “It allows us to become one of the top five [cheese and ingredients] players in the United States. It gives us a critical mass in a market that is consolidating very quickly. It allows us to better serve our existing and potential clients,” he explains.
Agropur made its first acquisition in the US in 2002 and has steadily built a business south of the border selling consumer brands and acting as a contract packer for other manufacturers.
The Davisco acquisition boosts Agropur’s B2B business in the US, Coallier explains, selling cheese and ingredients to branded manufacturers and supplying cheese and retailers’ private label. “After this transaction, 40% of our revenue will be generated in the US, which is a major change if you go back five or six years ago, when the vast majority of our revenues were generated in Canada,” he says.
The Agropur CEO also picks out Davisco’s whey ingredients business as an area of potential for the co-operative. “Davisco is also known not only for its cheese processing capability but also for the whey ingredient aspect. They’ve been known to have been leaders in the ingredients business. For us, it’s certainly a great advantage and it will accelerate our development in this area.”
Dairy companies around the world have been eyeing moves into ingredients amid growing demand for products like infant formula in Asia and protein-based foods in developed markets like the US.
Coallier says Agropur is looking at those kind of sectors but insists the co-operative needs to mull its options carefully before making specific moves with its new assets. “[Infant formula] is obviously among the alternatives. Today, this is not a market in which we are extremely developed,” he says. “The beauty about Davisco is they developed other high-end markets in the ingredients sector also addressing developing markets but not necessarily infant nutrition. This is an area that needs to be further examined. There are many players coming into this market. The acquisition opens up many opportunities.”
Davisco could open up doors for a co-operative making the lion’s share of its sales in North America. The deal will also see Agropur take on sales offices in China, Singapore and Switzerland, plus distribution centres in China and the Netherlands. However, only 5% of Agropur’s turnover will come from outside North America even with the Davisco assets on board.
Coallier says another factor behind the Davisco deal was Agropur’s desire to further build its business outside Canada and the US. “We made clear a couple of years ago that, in order to continue to pursue the growth of our organisation, we needed to contemplate some export business. It really opens up the international market, a market where we have had little involvement.”
However, as on the subject of the potential avenues for Agropur’s new whey ingredients business, Coallier insists the co-operative will look carefully before making its next international moves.
Agropur, Coallier says, wants to grow internationally amid the consolidation in the global dairy sector but, pressed on the co-operative’s ambitions outside the North America, he is guarded.
“We intend to develop our international business; what remains to be seen is whether it will be developed from an export stand-point or from a local presence. It’s too early to say. We need to evaluate what’s going on in other parts of the world,” he says.
“We understand well the demand but the question is: how you address this demand going forward? We know for example that a presence in China in the long run could be questionable because of the limit of what can be produced in China. We know China will never be self-sufficient in dairy products. We have this philosophy at Agropur that we prefer to walk as opposed to run. It’s moving very quickly right now. Sometimes when things are moving too quickly you don’t have a better read of what’s going on, so we want to make sure that we have a proper read. That all being said, it’s clear for us that in order to ensure the sustainability of our organisation the international aspect is very important.”
If Agropur could be cautious about China, where else could it then look? Other markets in south-east Asia, where demand for dairy is growing rapidly? Latin America, perhaps. Again, Coallier insists Agropur must scrutinise its options.
“It’s an extremely competitive market. In order to have a clear view, we need to continue to do our homework. Obviously other Asian markets would be of interest to us. There is South America. This is a market we know well and we have been involved and it’s a very complicated market,” he says.
Would acquisitive Agropur consider making a purchase overseas? Coallier says the co-operative “would not be opposed” to buying a company outside North America but, in typical fashion, says the deal would “have to fit perfectly with our strategy”.
Click here for part two of our interview with Coallier.