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Malting typically involves germinating barley and drying it for use in brewing. The process is ancient, but price tensions between suppliers and customers are eternal. France’s Malteries Soufflet is buying United Malt Group for $1bn to improve its bargaining position with big brewers.
The Australian maltster has been left more than a little mashed by disrupted commodity prices. These have been destabilised by the pandemic and war in Ukraine. The bitter added ingredients have been droughts that wrecked the Canadian barley harvest.
UMG was unable to supply malts economically to North American craft brewers. Its profits collapsed.
This has given InVivo an opportunity to participate in consolidation. The French co-operative, which counts KKR as a co-investor, acquired Malteries Soufflet in 2021. The UMG deal will propel InVivo to the number one place in global malting ahead of Boortmalt. The latter is owned by rival French co-op Axéréal, which also acquired Cargill’s malting business in 2018.
The deal broadens Malteries Soufflet’s footprint beyond its current European focus. “The malting industry is consolidating to catch up with brewers and rebalance market power,” says Brent Atthill of RMI Analytics.
Malteries Soufflet is paying A$5 a share, equivalent to a steep 45 per cent premium to the undisturbed price in March. However, UMG only listed last year with shares peaking at $4.9 shortly afterwards. The stock dropped about 35 per cent from peak to trough last year. Operating margins collapsed to less than 2 per cent from almost 10 per cent in 2019.
Taking into account next year’s expected earnings recovery, the multiple of 11 times ebitda is in line with sector norms.
Shareholders are unlikely to resist the deal. But shares trading below the offer price hint that competition authorities are a hurdle. The businesses of Malteries Soufflet and UMG overlap in the UK. The Competition and Markets Authority, the local antitrust watchdog, is increasingly muscular. Ancient industries are as exposed to modern regulatory trends as any other.
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