PRIVATE equity buyers and offshore firms lining up to submit first-round offers for fruit and vegetable group Costa Group this Thursday face a dilemma.
On one hand, they've been asked to focus on the upside in 2016 when earnings are expected to hit $93 million, but there's also the spectre of the power of Woolworths and Coles, who are the group's biggest customers.
Chinese conglomerate Fosun, Driscoll's (Costa's joint venture partner in the United States) and the Canada Pension Plan Investment Board are among the potential trade buyers, sources told Fairfax Media at the weekend.
While private equity may struggle to match the price expectations of Costa's owners, it's understood Pacific Equity Partners, The Carlyle Group, Bain Capital, CHAMP Private Equity and Barings Private Equity Asia were considering indicative offers.
Costa Group's owners, the Costa family and US-based private equity firm Paine & Partners, are weighing up whether to float the business or sell it to a trade buyer. The company is expected to be worth as much as $1 billion.
As previously reported by The Australian Financial Review, the information memorandum from advisers Goldman Sachs and UBS shows Costa expects to make $73 million in earnings before interest, tax, depreciation and amortisation this year, increasing to $93 million in 2016.
The 100-odd page IM also showed Costa had invested plenty of money upgrading its production facilities in the past 12 months. It points out the company was less exposed to agricultural risks because as much as 70 per cent of the crops are in greenhouse facilities.
One concern for prospective investors may be the company's grocery exposure, given it is the biggest supplier of fresh food to Coles and Woolworths, with about 20 per cent of product shipped overseas. A decision on the best sale option is expected once first-round bids are received.
