Coffee M&A: List of Possible Takeover Targets in Coffee Industry

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(List compiled by Andrew Dominguez)

The stock market needs a new disclaimer, “Beware: Hot Coffee Stocks”. Coffee related companies have been performing very well over the past year, most notably Coffee Holding Co. (JVA), which is up almost 369%, and Green Mountain Coffee Roasters (GMCR), which is up almost 230%.

Analysts at 24/7 Wall St. have attributed this trend to speculations about major mergers between coffee companies. Indeed, Green Mountain Coffee was on a buying spree in 2010, acquiring Diedrich Coffee for $300M and Van Houtte for $890M (via The New York Times). 

In the meantime, Starbucks (SBUX) cut off its distribution ties with Kraft (KFT), which resulted in legal battles between the two companies. Starbucks had previously distributed its ground coffee through Kraft before ending the deal prematurely. Starbucks is planning on buying other businesses to expand its supermarket distribution, reported Bob Van Voris of Businessweek in January.

It is unclear where the next set of mergers and acquisitions in the industry will take place. Scott Van Winkle of Canaccord Genuity wrote in February that the financial numbers are pointing towards a Starbucks and Green Mountain Coffee partnership.

“We continue to believe that a Starbucks-GMCR partnership will occur and now believe that the new partnership could revolve around the new Keurig brewer technology about to be tested. We view any potential partnership with Starbucks as a significant positive for brewer adoption… Our belief has been, and continues to be, that Starbucks coffee will be available for Keurig brewers later this year. A deal is inevitable…” Van Winkle wrote in a research report (via 24/7 Wall St.)

Interested in sniffing out possible takeover targets? For this article, we decided to look up the levered free cash flow to enterprise value ratios of several coffee companies.

Enterprise value (EV) is, theoretically, the takeover price for a company. Levered free cash flow (LFCF) is a measure of a company’s available cash. In the case of a takeover, the levered free cash would be transferred to the purchasing company, which would reduce the effective cost of the acquisition (ie, if company A bought company B for $10B and company B had $2B in LFCF, company A would effectively be paying $8B).

Do you think any of these companies are possible takeover targets?

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List sorted by levered free cash flow as a percentage of enterprise value. 

1. Sara Lee Corp. (SLE): Market cap of $11.33B. TTM Levered Free Cash Flow at $1.56B which is 12.80% of its $12.19B enterprise value. Share prices are up 39.28% since last year. It sells coffee and tea products under the brands Douwe Egberts, Senseo, Maison du Cafe, Marcilla, Merrild, Pickwick, Cafe Caboclo, Cafe Pilao and Cafe do Ponto.

2. Starbucks Corporation (SBUX): Market cap of $29.66B. TTM Levered Free Cash Flow at $665.00M which is 2.35% of its $28.28B enterprise value. Share prices are up 55.18% since last year. Starbucks operates in more than 50 countries under the Starbucks, Tazo Tea, and Seattle’s Best brands.

3. The J. M. Smucker Company (SJM): Market cap of $8.75B. TTM Levered Free Cash Flow at $196.88M which is 2.03% of its $9.71B enterprise value. Share prices are up 25.78% since last year. Its coffee brands include Folgers, Dunkin Donuts (self-brew ground coffee), Millstone, and Natural Brew.

4. Peet's Coffee & Tea Inc. (PEET): Market cap of $768.69M. TTM Levered Free Cash Flow at $12.19M which is 1.68% of its $725.49M enterprise value. Share prices are up 49.79% since last year. It is a specialty coffee roaster and marketer of fresh roasted whole bean coffee and tea. It distributes its coffee through grocery stores, home delivery, office, restaurant and food service accounts and Company-owned and operated stores in six states.

5. Kraft Foods Inc. (KFT): Market cap of $62.23B. TTM Levered Free Cash Flow at $824.38M which is 0.92% of its $90.05B enterprise value. Share prices are up 24.82% since last year. Its coffee brands include Jacobs and Maxwell House. It was the former distributor of Starbucks ground coffee.

6. Coffee Holding Co.Inc. (JVA): Market cap of $122.81M. TTM Levered Free Cash Flow at $982.11K which is 0.80% of its $122.12M enterprise value. Share prices are up 368.97% since last year. It is an integrated wholesale coffee roaster and dealer. Its coffee brands include S&W Premium, Café Caribe, Café Supremo, Via Roma, Don Manuel, Fifth Avenue, and Entenmann’s Coffee.

7. Caribou Coffee Company, Inc. (CBOU): Market cap of $272.42M. TTM Levered Free Cash Flow at -$1.35M which is -0.55% of its $247.42M enterprise value. Share prices are up 39.03% since last year. It operates Caribou Coffee coffeehouses in the US and around the world. It also sells its coffees through grocery stores, mass merchandisers, club stores, office coffee and foodservice providers, hotels, entertainment venues and e-commerce channels. It also sells its blended coffees and licenses its brand to Keurig, Inc. for sale and use in its K-Cup single serve line of business.

8. Green Mountain Coffee Roasters Inc. (GMCR): Market cap of $13.5B. TTM Levered Free Cash Flow at -$143.42M which is -1.04% of its $13.78B enterprise value. Share prices are up 229.88% since last year. It owns the Keurig brand of single-cup brewing systems. It produces and sells ground coffee for its Keurig K-Cup system, as well as for more traditional packaging and sales (ie, ground coffee for traditional coffee makers).

9. Farmer Brothers Co. (FARM): Market cap of $172.64M. TTM Levered Free Cash Flow at -$16.77M which is -9.93% of its $168.94M enterprise value. Share prices are down 28.57% since last year. It is a manufacturer, wholesaler and distributor of coffee, tea and culinary products to institutional food service establishments including restaurants, hotels, casinos, hospitals and food service providers, as well as retailers such as convenience stores, coffee houses, general merchandisers, private-label retailers and grocery stores.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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