TPG again mulls selling Strauss Coffee stake

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IBI: After a decade, TPG wants to cash in and take its profit.

US investment fund TPG is again trying to withdraw from its partnership in Strauss Coffee. The fund today reported, "The process of considering possibilities for selling the shares in Strauss Coffee has begun." Strauss Coffee said, "No decision whatsoever has been taken about what the company will do in the matter."

TPG and Strauss Group Ltd. (TASE:STRS) have been partners in Strauss Coffee since the fund acquired 25.1% of the latter's shares for $293 million in 2008, reflecting a $1.16 billion value for Strauss Coffee. As a private equity fund, TPG wanted to sell its holding after a few years, and in 2013 asked Strauss to either buy its share or hold an IPO for the company. A court in the Netherlands (where Strauss Coffee has its headquarters) which heard the case, however, rejected the fund's allegations. In March 2015, Strauss announced that the coffee company had submitted a confidential draft prospectus to the US Securities and Exchange Commission (SEC) for a possible US share offering. Since then, however, there has been no progress in the matter, and it does not appear that a Strauss Coffee IPO is now being considered, which could explain TPG's wish to try again to exit its partnership.

The fund will likely attract interest in its holdings from various funds and investors, but not competing companies. It also cannot be ruled out that Strauss may buy the minority stake in the company it controls. Strauss's 2015 financial statements list its investment in Strauss Coffee at a NIS 1.3 billion value.

In a comment today, IBI Investment House research department manager Dorin Palas stated, "After almost a decade of partnership, TPG, which is after all a private equity fund, has gone as far as possible with its holding, and wants to cash in and take its profit." Concerning the timing of the sale, she wrote that an attempt to maximize its profit was now taking place, because, "The currencies support this action, the third quarter results looked good, and it appears that in the foreseeable future, the positive trend will continue."

About the potential price for a deal, Palas wrote, "As of now, the market is pricing all of Strauss's business at a multiple of 10 on its earnings before interest, taxes, depreciation, and amortization (EBITDA), reflected a value of $1 billion for the coffee business. Comparable companies in the coffee market are trading at an average EBITDA multiple of 14. If we assume even a multiple of 12 for Strauss Coffee, we get a value of $1.2 billion - a 19% upside on the coffee business and 7% for Strauss's total market value (assuming a multiple of 10 for all of Strauss's other business)."

Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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