Lavazza Weighs M&A Options in a Strengthening Coffee Market

Italy’s largest coffee group by sales, Lavazza now have the capacity to spend up to €2bn on acquisitions to further its global ambitions within a strong industry dominated by Nestlé and JAB of Switzerland.

Lavazza Chief executive, Antonio Baravalle said: “If we want to be independent in this big consolidation process, there is only one possibility – to grow. Either you sell or you grow, there is no other alternative.”

Mr Baravalle has said that Lavazza is looking into potential acquisitions, while also making investment to grow. Since it began in 1895, the Turin-based company have established themselves within the industry, becoming the world’s third largest coffee company by retail sales, after a number of acquisitions.

However, when compared to Nestlé and JAB who have more than a third of the global coffee market between them, Lavazza is a long way off with just 3% of the global market.

“Within another year, we will be able to look at other opportunities,” Mr Baravalle said, adding the group’s target was to achieve revenues of €2.2bn in 2020, with the help of acquisitions.

Lavazza has net cash of €700m and would be able to raise €1.5bn, arming them with €2bn of potential M&A firepower. Mr Baravalle added the company have enough money to spend on its path before considering an IPO.

Over the past 4 years, Industry giant JAB spent $30bn on acquiring coffee brands, including Jacobs Douwe Egberts and Keurig Green Mountain, amongst others.

Acknowledging the difference in scale, Mr Baravalle said: “There is space for an independent third group. We are lucky to have one of the few potential global coffee brands; we are in the premium part of the market and in the espresso-based segment, which is booming.”

Lavazza’s 2016 takeover of France’s largest coffee retail brand, Carte Noir, boosted group revenues 29% to €1.9bn compared to 2015. New products, including Prontissimo!, the company’s first premium instant coffee, aided their organic growth by 4%, excluding acquisitions. Operating profits of €61.7m displayed a rise of 34%.

When former executive of Fiat and Diageo, Mr Baravalle took charge of the Turin-based company 6 years ago, 30% of its sales came from outside Italy, a figure which last year rose to 60%.

Lavazza’s share of its home market rose marginally to 41% but it will face competition from Starbucks, which is opening its first store in Milan.

In response to Starbucks’s global expansion, Mr Baravalle said: “I am very happy with Starbucks opening everywhere because they are moving people from instant coffee to espresso.”

North America, Germany and northern Europe are deemed as attractive areas for expansion, with fair trade and organic coffee being highlighted as fast growing segments for potential M&A. However, he concluded by saying: “There is only one rule – ownership of the company will remain with the Lavazza family”.

Stay tuned to our blog for industry M&A analysis and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.

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