JAB ready for more after Pret A Manger deal

Little-known private company is buying up consumer brands with wealth of Reimann family and co-investors

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After buying Pret A Manger this week, relentless dealmaker JAB Holdings should think of changing its name to Pret a Acheter.
 The British food-to-go chain is the latest addition to the bulging basket of household names in coffee, food and cosmetics by a little-known private company—one that has been blazing a trail through consumer industries with the backing of one of Europe's wealthiest families.
 The £1.5bn acquisition of Pret, which JAB intends to expand internationally, follows January's $18.7bnpurchaseofDr Pepper Snapple, the Sunkist and 7UPUS fizzy drinks maker and the $7.5bn spent last year on Panera Bread, the US fast food chain.
 JAB's three managers — Peter Harf, Bart Becht and Olivier Goudet — have spent an estimated $53bn in six years on roughly14deals,mostof it on coffee.
 After displaying such a voracious appetite, the question now is whether JAB intends to continue the same rate of deal making and where its ultimate ambitions lie. “The end game is now to have a major player in beverage and we retain our objective of being a major player in coffee,” said Mr Becht, JAB chairman. “We like to do only friendly deals and do not like auctions as you frequently end up paying too much.”
 The three men guard their privacy and that of JAB, the Luxembourg-based investment company that manages the wealth of Germany's reclusive billionaire Reimann family. According to one person who knows them: “Peter is the patriarch and visionary who sets the long-term direction; Olivier is the rainmaker — he brings in the deals—and Bart is operational—he gets things done.”
 JAB is sometimes compared with 3G Capital, the US private equity group, which has also been making huge waves in the consumer industry and owns Kraft Heinz with Warren Buffett's Berkshire Hathaway investment group. Both use cheap money to gear up for M&A and both have a long-term investment horizon—10to20years in JAB's case.
 But unlike 3G, whose Brazilian cofounders have their roots in investment banking, the JAB trio's background is in managing consumer companies. 3G has yet to prove it can run Kraft Heinz for organic growth as successfully as for profitability.
 “3G starts with cost-cutting, then reinvests in M&A. JAB has more of a brand-building, organic culture,” said one industry veteran.
 Nevertheless, there is some overlap in personnel. Mr Harf used to chair Anheuser-Busch InBev, which became the world's biggest brewer thanks to the M&A driving force of Jorge Paulo Lemann, 3G's founding partner. Mr Goudet, a former executive at Mars, the US family-controlled food group, chairs the Budweiser brewer today.
 An indirect JAB investment in Burger King was liquidated after the chain was bought by 3G, to ensure no links between the two, suggesting they are unlikely future bed fellows.
 The principal owners of JAB are four Reimann siblings—Wolfgang, Matthias, Stefan and Renate — who collectively have a fortune estimated by Forbes of $17.6bn. Yet the four, who are in their 50s and 60s, are so publicity-shy that there are no photos to accompany their names in the Forbes list.
 Hidden behind JAB's three initials are a complicated set of companies, corporate structures and funds that trace their origin to Johann Adam Benckiser, who in 1823 set up a chemicals company in south-western Germany. His son-in-law, Ludwig Reimann, ran the business that became part of Germany's Mittelst and — one of the large number of small and medium-sized companies underpinning the country's economy.
 When Albert Reimann junior, the last descendent to manage the company, died in 1984, he left equal stakes in the group to his nine adopted children, four of whom bought out the other five.
 By this stage, the Benckiser conglomerate of industrial and consumer businesses was suffering badly during an economic downturn — but was transformed by Mr Harf, who had joined in 1981, armed with a doctorate in economics, a Harvard MBA and a spell as a management consultant.
 Mr Harf took the struggling Benckiser and turned it into a business focused on household and consumer products, through bold acquisitions, such as Coty in 1992 which gave it 30 per cent of the US mass fragrances market.
 After recruiting Mr Becht from Procter& Gamble in 1988, the two later merged Benckiser with the UK's Reckitt & Colman, owner of Dettol disinfectant and Colman's mustard. Reckitt Benckiser became one of the UK's best performing companies for a decade.
 When Mr Harf floated Benckiser in 1997, it had a market value of $1.75bn. Today, three years after he stepped down from the Reckitt board to focus fully on JAB, it is£41bn($54bn).

$17.6bn Estimated collective fortune of the Reimann siblings that own JAB  

 “The family thought they weren't well off 40 years ago. They trust Peter completely because of the wealth he created for them,” said the person acquainted with JAB.
 The Reimann family give Mr Harf, Mr Becht and Mr Goudet a free hand at JAB to manage their fortune. The German, Dutchman and Frenchman have all been required to align their interests with that of the family by investing most of their private wealth into JAB.
 A consumer fund, backed by outside investors that include Singapore's GIC and the endowments of Stanford University and the University of Pennsylvania, has grown to play a bigger role in M&A — the Pret acquisition was made by both JAB Holding and the JAB consumer fund.
 “We assume that JAB Holding will be sharing financing responsibilities [for Pret] with JAB Consumer Fund and other co-investors, allowing the holding to stick to its financial policy to keep the average long-term loan-to-value between 15-20 per cent,” S&P, the agency which rates JAB's bonds investment grade, said this week.
 JAB, which has $80bn under management, has changed its strategy from investments in three main businesses of coffee, cosmetics and luxury, to focus on the first two. It sold luxury shoe brand Jimmy Choo and motorbike clothing manufacturer Belstaff, as well as a controlling stake in Bally. JAB has also been selling down its stake in Reckitt Benckiser, which has dropped from 10 per cent in 2015 to below 4 per cent today. The disposals help fund the mainly debt-financed acquisitions.
 So far, JAB's investments, apart from Coty, posted growth in underlying earnings before interest, taxes, depreciation and amortisation in the year to December 2017 and “solid margin development”, said Moody's the rating agency in February.
 “JAB's successful strategy is evidenced by the consistent growth of its portfolio value from €10bn in 2012 to around €25bn as expected by the company after the closing of Keurig Dr Pepper,” it added.

$53bn Sum spent by JAB's three managers in six years on roughly 14 deals

 Coty, the listed group in which JAB has a minority stake but aims eventually to acquire control, has been held back by the slow integration and turn round of P & G's beauty brands, including Max Factor cosmetics and Well a haircare, boughtin2016for $11.6bn.
 JAB may well slow up big deal making, at least for a period. But its M & A spree is not over, say the two people who know JAB. It will have more financial flexibility through publicly listed Keurig Dr Pepper once that deal closes and is likely to target a new business line to supplement coffee/beverages/food and cosmetics, in the future, they say.
 “They want to build something that preserves the family's wealth and that lasts forever,” said the person who knows the company.

Consuming passion

JAB shifts away from luxury

* Pending ** Controlling stake
Sources: Bloomberg; Bernstein; Moody's

JAB's leverage ratio

Debt to portfolio assets (%)

JAB's striking portfolio growth

* Jacobs Douwe Egberts

'The family thought they weren't well off 40 years ago. They trust Peter [Harf] completely because of the wealth he created for them'


Challenger to Nestlé
Coffee assets worth $30bn snapped up
JAB has spent more than $30bn on coffee assets since 2011, fast becoming a challenger to Nestlé, the industry leader by sales. It has a majority stake in Jacobs Douwe Egberts and owns Keurig Green Mountain in the US. It has also been buying up smaller, on-trend companies including Stumptown and Intelligentsia coffee.
 Mark Schneider, chief executive of Nestlé, the world's biggest coffee group by sales, told the FT this week that the Swiss company and JAB had different strategies. “We're pursuing a very, very coffee-centric strategy and what you're seeing with them is a much stronger emphasis on the casual dining and food-related activities, which clearly has not been a focus for us,” he said.
 JAB's £1.5bn acquisition of Pret A Manger—which makes less than 20 per cent of revenues from hot drinks—marks a further step into fast food. JAB also owns Einstein Bros Bagels, Krispy Kreme and Panera Bread.
 Nestlé too has been active on the M&A front. Last month, it agreed a $7.2bn deal for the rights to distribute the Starbucks' packaged coffee. Last year, it paid $700m for a majority stake in the US upmarket coffee retailer Blue Bottle Coffee and bought Chameleon, the US organic cold brew brand.
 Jim Watson, senior analyst at Rabobank, believes “coffee is now another beverage that must be included in the broader portfolio”.
--Scheherazade Daneshkhu and Ralph Atkins



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