ANALYSIS: Advent International, Dufry Group and Aldeasa

Gavin Lipsith

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As the private equity firm Advent International considers another addition to its travel-retail portfolio, RavenFox.com examines the implications of a deal

When Advent International enlisted the services of former Aldeasa executives Julián Díaz and José Antonio Gea to steer Dufry Group's management, they bought into an impeccable heritage of Spanish travel retailing. And now it seems as though their intimate knowledge of the market may bear fruit as Dufry's bid for the Spanish travel retailer is considered.

As DFNI suggested when Advent acquired Dufry in February last year, Aldeasa was always a strong candidate for acquisition. ?If Dufry/Advent is serious about realizing its ambition for market leadership,? wrote DFNI (March 15 '04), ?there are few targets...With its focus firmly on Spanish and Latin American interests, Aldeasa might prove a good fit for an investor seeking a reputable, largely profitable company in this market."

However, the timing of Advent International's approach may have come as a surprise to some observers, coming just under a year after the private equity firm's acquisition of 75% of shares in Swiss group.  Following its acquisition, Dufry CEO Julian Diaz told DFNI that the company would concentrate on organic growth initially, with further acquisitions part of a medium- to long-term strategy.

Dufry has achieved promising organic growth since the acquisition. In the first eight months of 2004 it recorded sales of SFr568.9m ($474m), up 12% on the period in 2003, and opened new stores in Singapore, Cambodia, Mexico, Barbados, Russia and Italy.

Aldeasa also enjoyed a strong year, with a sales increase of 5.7% in the first nine months of 2004 to Eu476.4m ($603m), corresponding to a 20.2% rise in profits. And the company secured valuable extensions to some of its key contracts?notably at Lima Jorges Chavez International airport and Madrid Barajas.

Aside from the growth of the two companies there are also considerable synergies to be exploited. An acquisition would help develop Dufry's business in Europe, a strategy Diaz highlighted when he spoke to DFNI in October last year. Dufry has built a strong business in Italy's airports, is a successful ferry concessionaire in Greece and most recently has developed a presence in regional airports in France. Those businesses would be bolstered by Aldeasa's dominance in Spain, Portugal and the Canary Islands.

The Caribbean is a region of great strength for Dufry, and the addition of Aldeasa's business in Curaçao and Latin America would create a regional powerhouse. Mexico, where both companies are strong, could prove to be a flashpoint in brokering the deal. A combined company would enjoy a strong position in the market, and there may be competition issues to overcome. The role of Areas, the Spanish catering and retail firm that owns 10% of Dufry through an agreement with Advent, would need to be confirmed. The group already owns Mexican operator Operadora de Aeroboutiques, and a share in Aldeasa would give it a stranglehold on the country's travel-retail market.

A deal would also offer some cohesion to Dufry and Aldeasa's Middle Eastern businesses. Aldeasa's business in Jordan, where it runs stores at Amman, Aqaba and Marka airports, grew strongly last year, but remains isolated from the company's core markets. And Dufry's operations in the UAE?its Sharjah airport outlets and inflight contract with Air Arabia?are also performing well, with Sharjah planning an ambitious airport expansion.

But the biggest question over the deal is the price. Dufry's bid, is about four times higher than the $200m paid by Advent for Dufry?which was under a much greater burden of debt. And serious questions remain over the future of the Spanish operator's tobacco sales. As reported previously on RavenFox.com, the Spanish government is considering new legislation that could prevent Aldeasa's Spanish outlets from selling tobacco products, currently representing around 30% of its turnover at its stores in the country.