Olam International announced in a company statement that it has acquired Amber Foods Ltd. in a $275 million deal that brings with it the Nigerian wheat milling and pasta manufacturing operations of BUA Group, one of the country’s biggest millers.

 

BUA Group is a diversified food and infrastructure business, and is one of the top five wheat millers in Nigeria with the capacity to produce 3,760 tons of wheat and 700 tons of pasta per day.

 

The assets acquired in the deal include two wheat mills, a pasta production plant in Lagos, a mill located in North Nigeria which is currently shuttered, and a wheat mill and pasta making facility currently being constructed in Part Harcourt, Nigeria, according to Bloomberg.  Once the plants are fully operational in June 2016, Olam’s milling capacity in Nigeria will increase from its current 2,380 tons per day to 6,140 tons per day, bringing the group’s total milling capacity in sub-Saharan Africa to 7,640 tons per day. This increase will make Olam the second-ranked wheat miller and the top pasta manufacturer in Nigeria by sales volume, according to the company.

 

There is talk that Olam may make future additional investments to reinforce its brand in the market to support improved competition by its pasta products with rival products.

 

“It’s basically a matter of expanding their product offerings,” Carey Wong, OCBC Investment Research analyst, told Bloomberg from Singapore. “We don’t think they’re straying very far from food products, not like the last time when they did fertilizers which didn’t really pan out.”

 

Earmarking Grains as one of the group’s six platforms for investment focus and growth, Olam has been building its wheat milling platform in sub-Saharan Africa since 2010 when it acquired Nigeria’s Crown Flour Mills (CFM). Since then, the group has increased the capacity at CFM and has expanded its milling operations into Senegal, Ghana, and Cameroon.

 

“Nigeria is a high growth milling market with volumes expected to reach five million metric tonnes [sic] in 2020 as population growth and urbanisation [sic] increase the demand for wheat-based products. The size of the Nigerian flour market is in excess of US$2.0 billion, growing at 3.5% per year while the pasta market is growing at the rate of 8.0% per year,” said Managing Director and CEO of Olam Grains, K.C. Suresh, in a company release.

 

The acquisition will be financed through a combination of debt and internal accruals, and is expected by Olam to be earnings accretive in the first year after integration. In addition, the group has expectations of earnings before interest, tax, depreciation, and amortization (EBITDA) to Invested Capital return of between 13% and 16% once the facilities are fully operational in 2018.