Super Group Ltd. (SUPER), Singapore’s largest instant-coffee maker, is seeking its first acquisition in a decade as it battles Nestle SA (NESN) for a bigger share of the market in Southeast Asia and China.
“We are building our war chest for acquisitions,” Darren Teo, Super’s head of corporate strategy and business development, said in an interview on July 23. “Organically, the company is doing well, but we are looking at ways we can expand faster. We are at the right time of the growth story.”
The seller of the Owl and Super Coffeemix brands wants to add “fast-growing” coffee producers with established labels, Teo said. The Singapore-based company also wants to buy beverage makers to expand its repertoire of non-coffee brands, he said.
Coffee consumption in countries such as Vietnam and the Philippines surged by at least 55 percent from 2008 to 2011, more than 10 times quicker than the world average, according to the International Coffee Organization. A total of $4.2 billion of food and beverage purchases in Southeast Asia were completed this year, according to data compiled by Bloomberg.
The stock was unchanged at S$4.75 at the close in Singapore, while the city’s Straits Times Index (FSSTI) dropped 1.2 percent. Super has jumped 47 percent this year, compared with a 2.2 percent decline in the benchmark measure.
Super, whose coffee mix sachets compete with Nestle’s Nescafe, a key product for the world’s biggest foodmaker, is interested in companies with production facilities with ready-made ingredients and a distribution network, said Teo, who makes key strategic decisions at the company on behalf of his father David Teo Kee Bock, the company’s chairman.
Super made its last purchase in 2003 when it bought Owl International Pte, a closely held instant-coffee maker, for about S$20 million ($15.8 million), said Teo, 30. Along with Owl, the company’s Super Coffeemix brand competes with Nestle in eight Asian countries including Singapore, Malaysia and Thailand, said Teo, whose family has the biggest stake with about a third of Super.
“Consumers have their own preferences and freedom to choose many products in the markets, and we are confident on our competitiveness in the market,” Brata Hardjosubroto, Nestle Indonesia’s head of public relations, said in an e-mailed response to queries yesterday.
Super may seek an acquisition of a closely held coffee producer in Indonesia, the Philippines or China that’s worth as much as S$100 million, said James Koh, an analyst at Maybank Kim Eng Holdings.
“Super might be keen to acquire brands that would help them expand their market presence in these places where it is not so strong, or in new markets,” he said.
Super had S$96.1 million in cash and securities investments as of March 31, according to its statement in May.
Most of the region’s 650 million people will be middle class by 2020, and spending on food and beverages may climb at least 75 percent from 2000 levels, according to Accenture Plc. (ACN:US)
Successful consumer retail deals often require a known brand name to sell products through its distribution channels, said Tan Han Meng, an analyst at RHB Research. That gives Super the “pan-Asian branding with the potential to be a Nestle in Asia,” and expand market share, he said.
Super may struggle to find a suitable company as valuations aren’t cheap, with the average price-earnings ratio of potential targets exceeding 10 times, RHB’s Tan said.
Shares of Super trade at 31.7 times earnings, compared with the 20 times average of its 12 closest peers in Singapore, according to data compiled by Bloomberg.
The company also plans to introduce new products such as cereal and malt drinks in Myanmar, where it said it’s the market leader. This will help push its annual sales growth to as much as 15 percent over the next five years, Teo said.
For coffee, the focus will still be on Nestle, which Deutsche Bank AG said in a report last year controls half of the global market for the instant beverage.
“When it comes to coffee, you’ll think of Nescafe, but we’re probably the second name that comes to mind” in Asia, Teo said. “We are not afraid of competition.”
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