Campbell's: A Leverage Buyout Assessment

Simen Thorsheim & Adam Sagedahl

Student thesis: Master thesis


Campbell holds several characteristics, which in theory, should make the company a suitable LBO candidate. A strong brand, stable cash flow, sound financials, and a tangible asset base that can be leveraged such as production facilities. The packaged food industry, in which the company operates, has seen an increasing trend of general consolidation and private equity activity. The authors of this thesis thus found it interesting to assess Campbell from the perspective of a private equity investor, performing an LBO, and discussing concrete initiatives in order to create shareholder value and calculate the potential investment’s profitability through an IRR approach.
Campbell is a truly international corporation, and with products in a wide range of segments within the packaged food industry. This opens Campbell up to an array of complexity in regards to competition, product strategies and regulations etc. A carefully performed strategic analysis was therefore conducted, and it found Campbell to be well positioned in its main markets. A significant portion of its brand portfolio consists of healthy products, in line with the general population’s increasing preference for such, and with a reasonable level of brand loyalty. Furthermore, Campbell is seeking growth by establishing themselves in emerging- and growth- markets. In conjunction with the financial analysis of Campbell, which found the company to hold a solid stand in terms of profit margins etc., when compared to its peers, the two analysis laid the foundation on which future cash flow was projected. Ultimately the DCF model yielded a valuation slightly above the one of the public, suggesting Campbell is currently valued relatively fairly.
Empirical studies of comparable transactions indicate that an acquisition premium of minimum 20% would have to be paid in order to take Campbell private. Seen in the light of Campbell’s all time high valuation, a private equity firm would have to rely on improving margins in order to create a significant return. As Campbell’s main markets are saturated, margin improvement would have to come from cost-cutting. The probability of exiting at a higher valuation multiple is also perceived as low as multiples are at all time highs
Through empirical grounded “best practice” cost cutting initiatives, and a slight increase in sales, driven by emerging- and growth- markets, the authors believe an improved EBITDA-margin of 26%, up from 20% is possible. Combined with a preliminary capital structure, consisting of $17 billion debt and $10.6 billion equity (debt/EBITDA: 10.7x), of which 5.6% is amortized annually, an LBO of Campbell would yield a 22.7% IRR when exiting after five-years which in general is a satisfactory scenario.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2016
Number of pages216