Article by DataRoom re: fresh talks of takeover interest in Costa

Take it with a grain of salt but at a depleted SP and lots of activity in M&A - I'm sure Costa is showing up on some funds' radar.

https://www.theaustralian.com.au/business/dataroom/perfection-fresh-struggling-for-sunlight-as-interest-in-costa-group-grows/news-story/075fb9c287ad72d1bb0125eec93d3d37

Perfection Fresh struggling for sunlight as interest in Costa Group grows
The radio silence surrounding developments on the sale of fruit-and-vegetable grower Perfection Fresh has many in the market wondering whether suitors have turned their attention to large rival Costa Group.

Costa is listed on the Australian Securities Exchange with a $1.36bn market value and is the country’s largest fruit-and-vegetable wholesaler.

Perfection Fresh is a similar business, but smaller, and the understanding around the market is that buyers have been unprepared to meet the $400m-odd price expectations of the business backed by the Smorgon family.

The Costa share price has dramatically fallen since May from more than $4 to $2.99.In May, the shares dived 24 per cent after delivering an underwhelming profit forecast.

Some suggest the asking price makes the company good value for the growing number of pension funds and private equity firms eager to put money to work amid a low interest rate environment and ride the wave of the recovery in the Australian agriculture sector following a drought.

Among the groups that could be interested in Costa could be Macquarie Infrastructure and Real Assets and private equity firm Roc Partners who battled it out to buy its landlord, Vitalharvest, earlier this year.

It is also worth remembering that Kohlberg Kravis Roberts has previously invested in Australian horticulture, putting money into tomato producer and greenhouse owner Sundrop Farms.

Australian-based private equity firm BGH Capital would also be a logical contender. Private equity has owned Costa before.

Paine and Partners bought into the business, owned by the Costa family, in 2011 and the business floated in 2015 at $2.25 per share or a market value of about $717m.There was talk last year that Paine and Partners was looking at Costa for a possible bid with its US-based strategic alliance partner, berry grower Driscoll’s.

Part of the reason Costa’s share price has been depressed is that the strong weather conditions this season for growing have created a large supply on produce, placing downward pressure on prices.

Perfection Fresh has been on the market for some time through Goldman Sachs, and owns and runs farms around Australia, growing a range of fruits and vegetables.

Another potential suitor in the agriculture wholesale space is Quadrant or New Zealand-listed horticulture company Scales Corp.

The challenge for Perfection Fresh and Costa is that they count Coles and Woolworths as their customers, known to drive a hard bargain when it comes to price.

IBISWorld says Perfection Fresh and Costa both have 5 per cent of the Australian fruit and vegetable wholesaling market, while Costa has 12.8 per cent of the Australian fruit growing market.

BRIDGET CARTER
DATAROOM EDITOR