Žito Grupa Negotiates Acquisition of Zvijezda for Approximately 100 Million Euros

written by: Matilda Bačelić and Edis Felić

Žito Grupa is in the final negotiations for the acquisition of Zvijezda from Fortenova. Several well-informed sources have confirmed to Lider that due diligence is underway and that the conclusion of the transaction is certain. Negotiations between Marko Pipunić, the founder and majority owner of Žito Grupa, and Pavao Vujnovac, the majority owner of Fortenova, have been ongoing for some time, with one of the key issues being the price.

According to Lider’s sources, the price being negotiated ranges from 90 to 120 million euros.

Pipunić stated at Lider’s conference “Day of Big Plans” that the information regarding the acquisition of Zvijezda is speculation. Fortenova also responded that they do not comment on market speculation.

As is known, Žito Grupa, the leading agricultural-food group in Slavonia, listed its shares on the Zagreb Stock Exchange two months ago and raised 130 million euros in the IPO.

As announced prior to the IPO, the funds raised would primarily be used for projects from the announced investment cycle and for potential acquisitions. According to the published plan, Žito Grupa plans to invest 125 million euros over the next three years for investments and acquisitions aimed at organic and inorganic growth. If the acquisition of Zvijezda occurs, almost all of it would go towards that acquisition.

Transaction Price

Žito Grupa went public with a valuation of EV/EBITDA of about 8x. This should, in principle, serve as their price cap for paying for other acquisitions in the sector. Zvijezda achieved an EBITDA of about 15 million euros last year, so logically, a price of 120 million euros would be closer to the upper limit of a realistic transaction price.

A price of 90 million euros would reflect an EV/EBITDA multiplier of about 6x, which is closer to the lower limit. It is also necessary to consider the business in 2025 and for upcoming periods, as acquisitions do not buy the past but the future.

Moreover, transaction values in the industry can go over 8x, and sometimes over 10x – depending on the market, positioning, capacities, margins, company size, and degree of vertical integration, etc. For the Croatian market, realistic expectations are at the level of approximately 7x-8x of real recurring cash EBITDA. However, numerous factors can raise or lower the valuation by 10-20 percent.

Vertical Integration

The question arises as to what Žito would gain from this acquisition, and what Zvijezda and Fortenova would gain?

As explained by Joško Vučetić, a partner at the consulting firm Caper, Žito Grupa would gain vertical integration. With the Oil Factory Čepin already in its ownership, it is the largest Croatian processor of oilseeds with an annual processing capacity of about 150 thousand tons. By merging with Zvijezda, it would also gain leading national brands, distribution, and categories with higher margins (mayonnaise, margarine, etc.).

In addition to vertical integration, Žito would expand its portfolio with premium and mainstream brands and take over the only domestic production of mayonnaise and margarine in significant series. They would also gain regional expansion, control over input prices, and inventory optimization, Vučetić believes.

On the other hand, Zvijezda would gain a more stable supply of raw materials and cheaper inputs, reduced dependence on imported crude oil, and additional production capacities, i.e., the ability to utilize consolidated production capacities. Fortenova would gain much-needed funds for refinancing obligations and implementing its portfolio divestment strategy.

– Zvijezda is the largest producer of edible oils in Croatia, has strong brands, product categories with better and higher margins, and strong distribution. On the other hand, the Oil Factory Čepin is the largest processor of raw and refined oils, has more “commodity” brands (Tena), and a strong domestic raw material base, says Vučetić.

He emphasizes that consolidation creates a serious player that covers almost the entire value chain and two basic price levels of products – brand and “value” segment. – Consolidation will create a larger and more efficient national leader who will have greater market power in negotiations with retailers and suppliers. Integration can also bring operational synergies (logistics, procurement, inventory, etc.) and consequently stabilize prices on the shelves, Vučetić believes.

Given the market shares, the concentration will have to be reported to AZTN, so there is also that regulatory aspect before the conclusion of the transactions.

Zvijezda a Much Larger Player

If we look at the business results of Zvijezda and the Oil Factory Čepin, two companies that, if negotiations are successfully concluded, should find themselves in the same group and position Žito Grupa as the leading oil producer, we see how much larger Zvijezda is.

In terms of business revenues for 2024, Zvijezda is the dominant market leader with 155.2 million euros in revenue, holding a market share of 61.4 percent. The Oil Factory Čepin follows with 57.5 million and a share of 22.8 percent. Thus, the leading duo has a total market share of 85.2 percent, analyzes for Lider Nikola Nikšić, owner of Konter Consulting.

In a five-year period, Zvijezda’s total revenues have grown on average annually (CAGR) by 6.6 percent (the Oil Factory Čepin only by 0.8 percent), and in 2024, they were lower by 2.4 million or 1.5 percent compared to 157.7 million euros in revenue from 2023. During the same period, the Oil Factory Čepin had revenue of 57.7 million euros and a decline of 3.2 percent compared to 2023.

The Oil Factory Čepin managed to turn a loss from 2023 into a profit of two million euros last year, indicating a significant operational turnaround. Zvijezda maintained solid profitability — a net profit of 8.28 million euros and strong margins.

Zvijezda, emphasizes Nikšić, at the end of 2024 had only 397.4 thousand euros in total (short-term and long-term) obligations to creditors and lenders. Given the 1.9 million euros in cash on its accounts, the net financial debt is negative.

When it comes to the number of employees, Zvijezda had 356 workers at the end of last year, and their number is more or less stable at that level, while the number of employees at the Oil Factory Čepin is slightly increasing and reached 159 at the end of last year.

As announced in May, prior to the IPO of Žito Grupa, an investment of eight million euros was planned for the reconstruction of the oil refining plant. This investment is expected to increase production capacity from one hundred thousand liters per day to three hundred thousand liters per day, which could result in an increase in annual production and sales of 60 million liters of oil.

From Regional to National Producer

The Oil Factory Čepin can provide Zvijezda with stable and competitive domestic raw materials. This would reduce import dependence and control the entire chain: from the fields, oil mills, refineries to the final product. On the other hand, Zvijezda has an extensive distribution network in retail and the HoReCa channel in Croatia and the region. Žito would thus gain direct access to chains like Konzum, Lidl, and Plodine.

By acquiring Zvijezda, Žito, which made an offer to acquire Fortenova’s agricultural business last year, which ultimately went to Podravka, would transition from a ‘regional oil producer’ to the largest domestic food player in the category of oils, margarines, and sauces.

Let us recall that Žito Grupa manages a total of 21,300 hectares of arable land, making it one of the largest agricultural land processors in the Republic of Croatia. Together with 3,300 cooperators, it cultivates an additional 66 thousand hectares. In the domestic market, it is the largest producer of eggs, a leader in oilseed processing, and the second-largest producer of pigs.

In the first half of this year, Žito Grupa achieved 17.9 million euros in operating profit, which is an increase of 10.4 percent compared to the same period last year. In addition to achieving record profit, sales revenue also increased by eight percent, reaching 138 million euros.