Del Monte Lbo

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Del Monte Foods Company LBO Deal Report 1. Del Monte Foods Company (DLM or ‘the company’) is one of US 's largest producers, distributors and marketers of premium quality, branded pet products and food products for the retail market. It is the world’s sixth largest manufacturer of preserved food, and the leading producer of both preserved fruit and preserved tomatoes . Its pet products segment includes brands like Meow Mix, Kibbles n Bits, Milk-Bone, 9Lives, Pup-Peroni, Gravy Train, Nature 's Recipe, Canine Carry Outs, and Milo 's Kitchen, while its food products segment includes brands like Contadina, S&W, and College Inn. It sells these products to the retail markets via grocery chains, club stores, supercenters and mass…show more content…
By deleveraging over the years, DLM has decreased its debt levels, increased its debt capacity and financial flexibility, and thus reduced the overall probability of any financial distress. It also has shown steadily growing earnings and operating cash flows which indicate that the company has the capacity to service any additional debt and still remain a going concern. DLM operates in a stable and mature industry of pet and food products which although affected by periodic economic downturns are not cyclical or seasonal in nature. This means that the company has steady stream of income round the year. The company is able to generate these cash flows by a steady expense of capital that increased from $96.7MM in 2008 to $104.9MM in 2010 (4.5% CAGR), and thus indicating a low level of capital expense. Macro-economic factors such as the downturn in the economy could also mean that there are imperfections in the market due to which the company is undervalued and is thus a ‘low-hanging fruit’ with low purchase multiples. Lastly, from a PE firm’s perspective, if it brought in experienced people with the likes of Jim Kilts (ex-P&G, ex-Gillette turnaround strategist) on its management, it should be able to bring in the necessary operational, financial, and governance expertise to DLM and turn it into a more profitable organization by taking it private. All these factors made DLM a good candidate for an LBO by a
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