This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Darling International: An M&A Type That Will Work?

Stocks in this article: DAR

By Alex Gavrish, Etalon Investment Research; author of "Wall Street Back To Basics"

Darling International Inc. (DAR), a leading provider of rendering, recycling and recovery solutions to the food industry, announced in October 2013 that it will acquire Vion Ingredients, a division of Vion Holding N.V., for approximately 1.6 billion euros in cash, or $2.16 billion dollars. This is a significant transaction for Darling International, as its own market capitalization was $2.5 billion at the time of the transaction's announcement. Vion Ingredients specializes in the development and production of specialty ingredients from animal origin for applications in pharmaceuticals, food, feed, pet food, fertilizer and bio-energy. Vion Ingredients employs approximately 5,700 people worldwide and for FY 2013, reported revenues of €1.6 billion with approximately €200 million of EBITDA.

History has not been kind to shareholders during mergers

The long-term return to acquiring company shareholders is a controversial issue in the M&A process. Differences in companies' culture and values, overestimation of potential synergies, overpayment for targets during a hot M&A market are just some of the problematic aspects that characterize many mergers. Many academic studies point to frequent destruction of value in M&A. For example, a Bain & Co study of 790 deals greater than $250 million between 1995 and 2001 found that history has not been kind to shareholders of the acquiring companies. Only three in 10 have created meaningful value and slightly more than half actually destroyed value.

Without accounting for the two latest acquisitions by Darling International Inc. (DAR) Rothsay and Vion, the company was trading at an EV/EBITDA multiple of about x8 based on FY 2012 EBITDA. Based on a pro-forma consolidated financial information reported by company – after accounting for a recent equity capital raise and new debt taken to pay for these two acquisitions, and an exercise of option by underwriters to acquire an additional 6 million shares, the company is valued at approximately the same EV/EBITDA multiple of x8 based on 2012 Pro-Forma EBITDA and recent stock price of $20.80 per share. This highlights that the company is disciplined in its M&A activities as fundamental valuation is conservative and the combined valuation ratio does not deteriorate as in more dilutive M&A transactions done at higher valuation multiples.

Darling International hopes to buck the trend

Bain & Co "Learning curve" study found that frequent buyers that buy through economic cycles and acquire companies a fraction of their size usually perform best over the long-term. Robert Bruner, dean of the Darden Business School and professor at the University of Virginia, discusses different aspects of failed and value-destroying M&A deals in his book Deals From Hell. He finds that strategic deals done in related fields are usually the ones that perform best while the worst deals are often associated with "hot" equity markets.

Vion’s acquisition is big for Darling International Inc. (DAR) relative to its market capitalization. At the same time, it is a strategic deal, valuation is reasonable, and it is not "once in a while" acquisition. All of this make it an interesting transaction that is supposed to create long-term value for shareholders.

-By Alex Gavrish

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs