Is Retail Food Group Limited on the radar of this serial acquirer?

Franchise business Retail Food Group Limited (ASX: RFG) could be a potential takeover target from a billion-dollar Luxembourg investment company looking to dominate the global coffee market.

The 20% fall in Retail Food’s share price in the past 12 months, and close to 40% fall since March 2015 could be a perfect opportunity to get a cheap price.

JAB Holding Co., which manages the fortune of Austria’s reclusive billionaire Reimann family, acquired US-based Keurig Green Mountain Inc earlier this week for US$14 billion. It’s just the latest coffee company acquisition by the investment firm.

Bloomberg reports that JAB has spent $30 billion in the past four years acquiring coffee companies in the US and Europe, challenging the market leader Nestle. Those companies include D.E Master Blenders 1753 NV, Mondelez International’s coffee unit and Peet’s Coffee & Tea.

According to analyst Pablo Zuanic of Susquehanna Financial Group, JAB wants to be the Budweiser of the coffee space – in reference to Anheuser-Busch InBev NV, the world’s largest brewer. Mr Zuanic says JAB wants to consolidate coffee like Budweiser has consolidated beer.

The world’s coffee market is expanding at around 5% a year according to Euromonitor, while sales of single-serve capsules, delivered by Keurig and Nestle’s Nespresso unit are growing at more than 10%.

Coffee consumption in Asia is rising rapidly – between 5% and 10% annually, and represents a significant potential market for the coffee industry. China’s coffee consumption has been growing at more than 10% since 1998, according to research by the International Coffee Organisation (ICO). Japan and South Korea are the largest consumers of coffee in Asia on a per capita basis, while Indonesia’s large population accounts for nearly double Japan’s total coffee consumption.

With 2.2 billion people in 2012, average per capita consumption of coffee in Asia is just over 0.5kg, compared to 5kg in the European Union and 4.4kg in North America.

Retail Food Group, with a market cap of $741 million would be a small bite for JAB, but would give the company decent exposure to Asia Pacific. In fact, Retail Food’s brands are represented in 58 countries and territories. Even on an enterprise value basis of $932 million, JAB wouldn’t find it hard to swallow Retail Food.

The ASX-listed company also has extensive plans on expanding further into the $8.8 billion global coffee and allied beverage market, recently announcing the commissioning of up to three international coffee roasting facilities and distribution hubs in 2016.

Retail Food owns the coffee and café brands Gloria Jeans, The Coffee Guy, Cafe2U, Michel’s Patisserie, bb’s Café and Esquires, along with Donut King and Brumby’s Bakery, and has also diversified into quick service restaurants with Pizza Capers and Crust Gourmet Pizza. The company also has commercial speciality brands including Di Bella Coffee Group, Café Palazzo, Roasted Addiqtion and Evil Child. Between them, Retail Food has close to 2,500 outlets in its stable, not to mention its own coffee roasting facilities in NSW, Queensland, New Zealand and the USA.

Foolish takeaway

There’s every chance that Retail Food will pop up onto the radar of JAB at some stage, particularly as the company’s international expansion gathers pace. Even without the potential for a takeover deal, Retail Food is worthy of a spot in your portfolio thanks to a cheap price and forecast net profit growth of around 20% in the 2016 financial year (FY16) over FY15.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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