Canned heat

22 March 2007 By John Foley Follow @johnsfoley

High margins and strong brands like Dr Pepper make the confectionery group s drinks business well suited to the private equity treatment. Even at £8bn, a buyer would only need to juice up profitability a little and pour on plenty of debt to get a 25% annual return.

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Cadbury, the UK confectionery giant, is planning to demerge its US beverages arm. Private equity groups KKR, Bain Capital and Texas Pacific Group are already reportedly looking over the business.

The drinks business includes brands like Dr Pepper, Snapple and 7Up. It might make £664m of ebitda in 2007 after adjusting for a notional extra backoffice cost, according to Citigroup estimates. That figure is estimated to grow by 16% to £773m by 2010.

In 2005, Cadbury sold its European beverages arm, with brands including Orangina and Oasis, to Blackstone and Lion Capital for £1.3bn. The deal was funded with debt equivalent to just over seven times the unit's ebitda for that year.

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