On 11 July 2022 Dufry, a leading global travel retailer, announced its interest in acquiring an Italian- based multinational catering company Autogrill in a deal which would create a new global travel experience player with a total value of about USD 6.7 billion. Xavier Rossinyol, The CEO of Dufry commented:
“I am looking forward to working together as a strong team combining the know-how and – above all – the passion of the Dufry and Autogrill colleagues. We will leverage our mutual skills to develop more compelling offers for our customers and build the next generation of travel experience together.”
COMPANY OVERVIEWS
Autogrill
Autogrill, a company now operating across Europe and North America, was established in 1947 with a merger of three Italian restaurant groups, which were engaged in motorway catering in Italy. After listing on the Milan Stock Exchange in 1997, the company started a series of acquisitions of restaurant and hotel branches in France, Austria, Germany and Benelux countries. Later in 1999 the group made its first entry into the airport concession market, also spurring geographical diversification to the US, by acquiring an airport and motorway food service company HMSHost. Over the years of successful business Autogrill acquired a series of other airport duty-free retailers, becoming a leading food & beverage services provider with over 300 licensed and proprietary brands.
Nowadays the Group is present in 30 countries on 4 continents and operates in over 800 locations. More than 90% of the company’s business derives from about 3,300 points of sale in 139 airport terminals and multiple motorway service areas. The group successfully operates on a global market due to its exceptional business model, aiming at perfectly adopting to concepts of specific locations, local culture and customs, at the same time providing common and well-known choices for travelers seeking familiarity.
Dufry
Dufry is a global travel retailer operating duty-free shops and convenience stores in airports, cruise lines, seaports, railway stations and central tourist areas in 75 countries worldwide. Dufry is a Swiss-based company, that was originated in 1865. In 1952 the company discovered the new market and opened the first duty-free shop in continental Europe in Paris. Ever since Dufry has offered revolutionary travel experience to consumers through a diversified portfolio of retail formats, including duty-free, duty-paid, brand boutiques, specialized concepts and convenience stores addressing 2.3 billion passengers in 5,500 outlets across 1,200 different locations.
Dufry is a brand name for some of the general travel retail shops that feature a wide range of products such as perfumes and cosmetics, confectionery, wines, spirits and fashion, presenting its customers with a selection of the most prestigious brands. It is a truly global corporation with 53% of net sales generated in EMEA region, 43% in Americas and 2% in Asia Pacific regions. As a leading operator in the travel F&B market, Dufry has a market share close to 20% in airport retail and 11% market share in travel retail across all segments.
The company has up to 7% mid-term CAGR turnover, which is achieved by core passenger growth, spend per passenger surge and organic business development, further enhanced by current M&A opportunities.
With the new strategy “Destination 2027” the company strives to further diversify its geographical presence and foster continuous operational improvements with additional focus on ESG strategy implementation.
DEAL-SPECIFIC INDUSTRY OVERVIEW
The travel retail industry, which involves the sale of goods and services to travelers at transportation hubs like airports, is a growing sector. The industry has seen steady growth in recent years, with the increasing number of global travelers, particularly from emerging markets such as China and India. Additionally, the rise of e-commerce and online shopping has created new opportunities for travel retail, with many companies investing in digital strategies to reach customers. The travel retail market was valued at USD 104.2 billion in 2021 and is projected to reach USD 233.5 billion by 2030.
Products sold in travel retail include luxury items such as perfume, cosmetics, and fashion accessories, as well as electronics, food and beverage, and souvenirs. The industry is highly competitive, with many companies vying for market share, including large multinational corporations and small independent retailers. Retailers in the travel industry need to offer a diverse range of high-quality products, create a memorable shopping experience, and provide excellent customer service to succeed.
The COVID-19 pandemic has had a significant impact on the travel retail industry. Many countries implemented travel restrictions and reduced international travel, leading to decreased footfall at airports and other transportation hubs, which resulted in lower sales and revenue for retailers. Despite these challenges, the industry is expected to rebound as travel resumes and people start to return to airports and other transportation hubs. Companies in the travel retail industry are adapting to the new normal by implementing safety measures and developing new strategies to meet changing consumer behavior, such as providing more contactless shopping options and offering personalized promotions to customers.
DEAL RATIONALE
Autogrill and Dufry, have long evaluated the possibility of joining to improve the offer to travelers as the industry needs an innovative implementation of increasingly satisfactory services. Finally, the two companies have been looking at dealmaking plans after the severe hit at the height of the Covid pandemic with Dufry’s and Autogrill’s revenues dropping by 70% and 60%, respectively, in 2020.
On the 3rd of February 2023 the deal finally happened and Dufry’s CEO, Xavier Rossinyol, put the company’s acquisition rationale for Autogrill best when stating: “We are transforming our industry and redefining its boundaries, and we will create a new corporate identity to reflect this fundamental move. We will accelerate growth by fully focusing on consumers and digital, with an expanded service portfolio”.
In other words, the world’s biggest airport retailer Dufry is set to merge operations with global travel food and beverage (F&B) player Autogrill to create a new, integrated travel experience player. Up to now, at the global level, only Lagardère Travel Retail has had such broad services offer across duty-free retail, for convenience and F&B.
Firstly, the integration of Dufry and Autogrill into one organization is expected to generate cost synergies with an annual run-rate of approximately USD 87 million made up of cost reductions and gross profit improvements. Savings are projected to be made at the COGS level in F&B and convenience, especially in the US. Dufry also expects to optimize support function costs and reduce business-related operating expenses. The merger of a global travel retailer and a foodservice expert in travel locations gives Switzerland-based Dufry significant new weight in its contract negotiations with airport landlords. As Dufry said in a statement: “The integration of travel retail, convenience and F&B allows the combined entity to improve the commercial setup and revenue generation for landlords. This also includes bidding
to act as master concessionaire/terminal manager.” Thus, guaranteeing the best commercial setup and efficient handling to landlords and airport partners.
Secondly, the new entity is well positioned to provide travelers with a redefined, holistic travel experience that reflects evolving consumer trends. The complementary offering gives the group more contact points with travelers. In addition, it will have greater resources to grow its digital capabilities, focused on delivering tailored passenger experiences.
Thirdly, the expansion in the resilient US market and the business diversification will positively affect the group. Autogrill’s, strong position in the American F&B market is considered beneficial for the new entity because the US has proven to recover quicker and to be less volatile than the rest of the world due to the high share of domestic passengers. The combined Group will be present in more than 100 airports in the US, and with a shared presence in 17 of the country’s top 20 largest airports. Moreover, the combined entity will benefit from an increased level of diversification by geography, business type and channel, driven by Autogrill strong position in the highly attractive F&B market, as well as its current exposure to the duty paid market and multi-channel approach.
Finally, the deal positively impacts Dufry’s balance sheet. The enlarged entity will have a strengthened financial position with lower leverage compared to the Swiss retailer on a standalone basis. In particular, the company is targeting a level below 3x leverage by 2024-2025.
DEAL STRUCTURE
Italy’s Benetton family, controlling 50.3% stake in Autogrill through a fully owned subsidiary Edizione, agreed to transfer all its owned shares to Dufry, receiving 0.158 newly issued Dufry shares per one Autogrill share. The exchange ratio has been agreed upon based on the 3-month average share price of both companies, valuing Autogrill at €2.44 billion. The shares issued to Edizione correspond to 25.25% of Dufry’s total share capital, and upon acquiring additional stocks on the market it now holds about 27.5% of the company’s shares and is Dufry’s largest shareholder.
Although Dufry’s turnover remains 75.5% of the 2019 pre-pandemic levels, the company has been witnessing a strong financial performance recovery in the recent years, reflected in the company’s 2022 third quarter revenue increase of 146.2% compared to the same quarter the year before. The positive momentum has allowed the company to pick up growth, and in March 2023, the S&P Global Ratings has upgraded Dufry’s credit rating from “B+” to “BB-“. Moreover, Dufry was placed on CreditWatch positive, indicating that the rating could be raised again after the transaction with Autogrill is completed. To meet the requirements, the new company must show that they can sustainably maintain EBITDA margins of close to 20%, leverage of well below 4x, and free operating cash flow of at least 10% of financial debt.
Upon obtaining all anti-trust and regulatory approvals and closing the transaction in February 2023, Dufry has launched a tender offer to acquire the remaining 49.7% of Autogrill’s share capital. The company offered shareholders 0.158 Dufry shares for each Autogrill share they hold, or €6.33 per share in cash. This provides shareholders with an opportunity to participate in the future of the combined entity, after Autogrill is delisted from the Milan Stock Exchange. According to the S&P report, the acquisition of remaining shares is unlikely to undermine Dufry’s credit metrics, as the company has a solid liquidity base
to face any scenario regarding the operation, even if the cash payable to the shareholders is fully debt- financed. Dufry expects to complete the acquisition process by the end of the second quarter of 2023.
According to Dufry, the combined entity is to be led by Dufry’s current CEO Xavier Rossinyol. The company is expected to observe around €14 billion turnover and €1.3 billion EBITDA, yearly addressing 2.3 billion customers in more than 75 countries in around 5,500 outlets worldwide.
Sources: Bloomberg, Autogrill, Dufry, Forbes, Reuters, Statista
Authors: Alisha Haque, Dardi Sulaj, Gabija Verbaite, Gherardo Peruzzi, Ruslana Karaman
Bocconi Students M&A Circle 
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