Olam aims to tap growth in Nigeria wheat market with $275m BUA acquisition
Under the $275m deal, Olam will take on two wheat mills and a pasta facility in Lagos, a non-operating mill in Kano and a wheat mill and a pasta plant under construction in Port Harcourt. BUA Group, described by Olam as one of the top five wheat millers in Nigeria, operates in a wide range of food and infrastructure sectors include sugar, edible oils, rice, cement, steel and real estate.
Olam said the acquisition would strengthen its position as Nigeria's number two wheat miller by sales volume and increase its wheat milling capacity in the country from 2,380 tons per day (TPD) to 6,140 TPD when the facilities under construction in Port Harcourt are completed this June. The deal doubles its total wheat milling capacity in sub-Saharan Africa to around 7,640 TPD.
Growing urbanization
Population growth and urbanization has increased demand for wheat-based products in Nigeria, according to Olam, with milling volumes expected to reach five million metric tonnes in 2020. The Nigerian flour market had grown 3.5% year on year to $2bn, added the company, with the pasta market growing 8%.
Olam said the local wheat milling industry benefited from a “favorable regulatory regime”, with wheat flour imports attracting 100% duty and pasta imports banned.
“We are very pleased to acquire these strategically located, port-based assets as undeveloped land at Nigerian ports is increasingly difficult to access,” said Olam Grains managing director and CEO K C Suresh. “They are highly complementary to our existing asset base in Lagos and Warri, and will not only strengthen our current market position and deliver multiple synergies but also enable us to access the high-growth areas in the north and south east of Nigeria.”
Prioritized for investment
Grains is one of six areas prioritized for investment and accelerated growth by Olam, which acquired the Crown Flour Mills (CFM) in Nigeria in 2010 and has since expanded the capacity of the business and set up milling operations in Ghana, Senegal and Cameroon.
CFM managing director Anurag Shukla said the BUA acquisition would increase Olam’s ability to provide “low cost food staples to the Nigerian population that have been manufactured in-country”.
“Wheat-based products, such as pasta, have grown in popularity among Nigerians due to changing tastes, the gradual rise of convenience and, for many, as an affordable option to meet carbohydrate requirements,” he added.
The acquisition has been funded through a combination of debt and internal accruals, and Olam expects the acquired business to generate an EBITDA to invested capital return of 13% to 16% in 2018.
