Two big acquisitions shook up the annual list of the biggest global dairy companies from Rabobank, and could encourage others to pursue M&A opportunities.
DMK emerged from the merger of Nordmilch and Humana Milchunion and enters the dairy top-20 at number 13.
Just behind it is another new entrant – Sodiaal. The French co-operative owns half of Yoplait and now has a new partner in General Mills after the private equity investor PAI Partners sold its 50 per cent stake earlier this year.
But its share in Yoplait did not launch it into the top-20 this year. The co-operative has the acquisition of Entremont - concluded in January this year - to thank for that.
Both DMK and Sodiaal saw their dairy turnover figures increase to about €4bn in 2010.
The case for M&A
Mark Voorbergen, an analyst at Rabobank, explained the M&A activity in the context of market and regulatory changes.
“Both initiatives can be seen as moves to create more resilient businesses to better withstand global commodity price volatility and domestic retail pressure.
“Consolidation also creates a more efficient and flexible platform to tackle the upcoming challenge of the termination of the European quota system in 2015.”
Voorbergen added that he expects to see more mergers and acquisitions in Europe. One of the biggest looks likely to be the takeover of Parmalat (ranked 13th) by Lactalis (ranked 4th). But other tie-ups could be in the pipeline.
Referring to the M&A at DMK and Sodiaal, Voorbergen said: “As consolidation steps of this magnitude usually generate strategic reactions from competitors, subsequent M&A events in the French and German dairy markets should not be ruled out.
“The merger of Hansa-Milch into Arla Foods is a clear example. Similar developments can be expected, particularly in the German market where the level of concentration in dairy is still remarkably low.”
Beyond consolidation, another big factor to influence the list of the top dairy companies was commodity markets. Fonterra made big strides in the ranking climbing from 5th to 3rd position thanks to the upturn in dairy commodity prices.
Voorbergen said: “The elevated level of dairy commodity prices in 2010 favoured turnover developments of companies that have strong exposure to commodity markets relative to companies active mainly in retail markets. As a consequence, Fonterra reached its highest position ever in the top-20, coming in at number 3 behind Nestle and Danone.”