(Bloomberg) -- Brazilians love their rice and beans, but they’re also increasingly turning to alternatives. For Camil Alimentos SA, the nation’s biggest seller of the staples, the slowing demand means the best path for growth is in acquisitions to boost its market share or diversify into other products and countries.
That’s according to Chief Executive Officer Luciano Quartiero, who said in an interview the company is willing to use cash, shares or a combination of both for deals.
Camil’s eagerness for acquisitions reflects the fact that its growth prospects are capped by demand. While Brazilians’ average consumption of rice is three times that for consumers in the U.S., the rate has gradually declined over the years as rising incomes lead families to diversify their diets. At the same time, the global rice trade is muted because large consumers led by China are mostly self-sufficient. Still, industry concentration within Brazil is too low and that offers plenty of room for expansion through deal-making, Quartiero said.
Camil’s interest in acquisitions comes at a busy time for consolidation in the Brazilian food sector. Last week, M. Dias Branco SA bought private cookie and pasta maker Industria de Produtos Alimenticios Piraque SA for 1.6 billion reais ($500 million). That added to a string of deals over recent years.
"Growth opportunities through consolidation are gigantic," Quartiero said, adding that Camil could potentially double its size in rice.
The company isn’t limited to traditional staples. Since 2011, Camil diversified into fisheries and sugar through deals including the purchase of PepsiCo Inc.’s Coqueiro unit for an undisclosed value. Now, it’s looking into coffee, wheat flour and pasta. The Brazilian food packager made its debut in the stock market in September and was recently added to Franklin Templeton’s $1.2-billion Templeton Global Smaller Companies Fund.
Camil is analyzing potential deals in Chile, Peru and Argentina, where it already has operations, while seeking to enter Colombia. The latter nation of 52 million is attractive for Camil because Colombians eat almost as much rice as Brazilians, while the industry there benefits from higher concentration levels, according to Quartiero. Private companies Diana Corporacion SAS, Organizacion Roa Florhuila SA and Union de Arroceros SA account for a combined 62 percent of rice sales in Colombia, according to a 2016 paper on the nation’s rice industry.
Camil was founded in 1963 as a farm cooperative. It was eventually acquired by Quartiero’s father, a former seminarian and truck driver who started at the company in sales in the early 1970s. Even after last year’s stock offering, the Quartiero family still owns a stake of about 60 percent in the company. The listing should give Camil more flexibility to engage in potential mergers and acquisitions, Quartiero said.
Still, the company has faced hurdles since filing for its offering in July. It sold shares for 9 reais each, below the 10.50- to 13-real range in its prospectus, according to data from Brazil’s securities regulator. The stock has since fallen 13 percent, which stands in contrast to a 7 percent gain for Brazil’s benchmark index, making it the cheapest company among peers based on a price-to-earnings ratio.
Camil shares fell 0.5 percent to 7.80 reais as of 11:18 a.m. in Sao Paulo trading, compared with a 0.6 percent decline in Brazil’s benchmark Ibovespa index.
Earnings before interest, taxes, depreciation and amortization in the quarter ended in November fell 12 percent from a year earlier amid lower volumes and prices for rice and sugar, missing estimates from analysts.
While Camil is seen as a solid company with reduced earnings volatility, investors expecting it to quickly announce a relevant acquisition deal after its equity offering are disappointed with the lack of news, said Raul Grego Lemos, an analyst at Eleven Financial Research.
"It should have a better year ahead, but it also depends on its ability to make a deal that is strategically significant for its growth in Brazil and outside," Lemos said in a telephone interview from Sao Paulo.
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