(Bloomberg) -- Italian coffee maker Illycaffe SpA has attracted interest from suitors including JAB Holding Co. and Nestle SA, but the family owners have so far rebuffed approaches, according to people familiar with the matter.
JAB, which has built a coffee empire through a series of acquisitions, is interested in buying all of the Trieste-based coffee roaster, according to the people, who asked not to be named as the details aren't public. Nestle approached Illy some months ago and was told the family was unwilling to sell for the time being, the people said.
Representatives for JAB and Nestle declined to comment.
“We have regular contacts with those companies, as with almost all other companies in the sector, to discuss noncompetitive matters such as coffee and health, adaptation to climate change and market standards,” Illy Chairman Andrea Illy said in a statement. “Every hypothesis of corporate agreements has been deemed inappropriate.”
Illy, founded in 1933 by Francesco Illy and known for high-end espresso sold in silver-and-red cans, is led by the third generation of the same family. The business reported about 460 million euros ($539 million) in sales for 2016, up 5.3 percent from a year earlier, and operates in 140 countries.
The Italian company is one of the biggest independent coffee roasters left in a business consolidating around three big players: Nestle, JAB and Starbucks Corp. Bidding for Illy would probably start at around three times its revenue, or about $1.6 billion, according to Jon Cox, an analyst at Kepler Cheuvreux.
JAB owns brands and retailers including Peet's, Stumptown and Caribou and paid about 1.5 billion pounds ($2 billion) for sandwich-and-coffee chain Pret A Manger in May, people familiar with the matter have said. The investment company, backed by the billionaire Reimann family, is also raising about 5 billion euros from investors, people familiar with the situation said last month.
Nestle Expansion
Nestle is also expanding its coffee brands under Chief Executive Officer Mark Schneider as the company works to revive sales that grew at their weakest pace in more than two decades last year and the company's Nespresso division wrestles with the loss of patent protection on its capsules.
The Swiss food giant agreed in May to spend $7.2 billion for the right to market Starbucks products. Nestle will not get any physical assets in the deal, the third-largest purchase in its 152-year history. The company also agreed to buy a majority stake in Blue Bottle Coffee last year.
Illy is a niche player in the industry. Its market share was 0.2 percent in 2017, unchanged from 2008 levels, according to data from Euromonitor International. The industry is dominated by Nestle, with 22.6 percent market share. By comparison, Illy's Italian competitor Luigi Lavazza SpA increased its presence to 2.5 percent from 2 percent a decade ago after making acquisitions including French coffee brand Carte Noire.
“It's tougher and tougher to compete without growing. As the market consolidates around you, staying the size of an Illy or even a Lavazza becomes more difficult,” Jim Watson, a senior beverages analyst at Rabobank International, said. “As they all get bigger, and even as Lavazza gets bigger, it definitely puts Illy's place at risk.”
Illy Group, the holding company that controls the coffee brand, is seeking a financial partner for its other activities by 2019 and may decide on an initial public offering of the chocolate and tea units, Chairman Riccardo Illy said Monday in an interview with Italian daily La Repubblica.
--With assistance from Corinne Gretler and Isis Almeida.
To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net;Ruth David in London at rdavid9@bloomberg.net
To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net, ;Eric Pfanner at epfanner1@bloomberg.net, Amy Thomson, John J. Edwards III
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