Food Deals Round-up - October 2009
Introduced by Simon Peacock, Catalyst Corporate Finance.
The ‘Good Life’
Chicken Feed
Creating a splash
Deja-vu?
The ‘Good Life’ (or why the Food & Drink industry is profiting from the recession)
With the economic downturn likely to continue into 2010, home cooking, casual and simple meals are increasingly popular terms used by those in the food & drink industry. Whether it is recipe ideas to help consumers make the most of their leftovers, or low price “necessary luxuries” like chocolate and baking ingredients, anything to make consumers feel safer during this turbulent period are seen by industry insiders as lower risk winners.
Similar ideas are also being echoed at boardroom level and in the latest mergers & acquisitions (M&A) activity completed. For example, Asda CEO Andy Bond has reported a 40 per cent increase in sales of cooking ingredients, alongside a similar drop in the sale of ready meals. Cadburys, recently the target of a hostile takeover approach from Kraft, announced first quarter results with chocolate sales up seven percent due to their standard Dairy Milk brand rather than the premium Green and Blacks. And in a period where private equity buy-outs were at their lowest level in the first quarter of 2009 for thirteen years, a £24 million buy-out of a sauces business, TSC, took up most of the second page of the Companies and Markets section in the Financial Times.
So why is the food and drink sector appearing to benefit from the global downturn? The answer lies partly in the fact that the food and drink manufacturing sector was arguably one of the best prepared sectors in the UK to face the recession. For many years UK suppliers have faced competition from low cost manufacturers overseas, rising commodity prices, increasingly demanding retailers, and the pressure to satisfy and retain a consumer spoilt by a wealth of product innovation. These challenges have forced the sector to develop and evolve into an industry composed of a significant number of businesses with a flexible and resilient core profit stream.
Despite this, many food and drink manufacturing businesses will still have faced some of their greatest challenges over the last 12 months. Costs will have had to be severely cut, suppliers will have gone into administration, credit insurance will have been reduced and funding withdrawn by their banks.
In the face of this though, the defendable positions taken by food and drink businesses have allowed a significant number of them to prosper in spite of the recession.
The irony of this is that now some food businesses have even become targets for acquirers. This is because potential trade buyers have seen the cash on their balance sheets attract a dwindling interest return and private equity firms have started to consider investing again. Who would have thought twelve months ago that a food deal in the region of £10 billion would be rumoured in the press?
So what does this mean for owners of businesses, investors and ultimately M&A activity? Will consumers continue to spend on traditional foods rather than buying their usual convenience meals? Will the next flurry of food deals involve a ‘Good Life’ styled Tom and Barbara owner or management team? How will buyers view valuation at the current point in the M&A cycle?
The reality is that food and drink can be a lower risk sector in a recession. Whilst a return to a ‘Good Life’ styled self-sufficiency may be an extreme, the increase in basic food pleasures and resilient food and drink businesses may well form the backdrop for renewed M&A in the sector.
CATALYST
CORPORATE FINANCE
simonpeacock@catalystcf.co.uk
Back to the top During the past 12 months, the Food specialists at Freeth Cartwright have been involved in a number of deals for food businesses, including:Chicken FeedWe acted for J.E. Porter Limited on the multi million pound sale of its Flixborough feed mill business to AB Agri, part of Associated British Foods Plc. The mill, which underwent a major refurbishment in 2003, produces compound monogastric poultry and pig feed.The Freeth Cartwright team was led by partner and head of corporate finance, Karl Jansen, who was introduced to the business following his work for the Padley group of companies on the sales of their poultry and frozen vegetables businesses.Karl commented: “Due to AB Agri’s position in the market, the transaction was subject to clearance by the Office of Fair Trading which meant that, having effectively agreed the deal, the sale was put on hold while the OFT undertook the necessary consultation before deciding whether or not to make a referral to the Competition Commission. This obviously presented some challenges in protecting the business and its goodwill pending the OFT’s decision, particularly as, by the very nature of the consultation exercise, the proposed sale was in the public domain without any guarantee that the competition authorities would give the necessary clearance. We were delighted for J.E. Porter when the OFT’s decision allowed the transaction to conclude.”
Graham Porter, managing director of J.E. Porter, said; “This was our first experience of a transaction of this size and nature, with the added complication of the OFT’s involvement. Full marks go to Karl and his team for their commitment and professionalism in helping to push the deal through.”
J.E. Porter continues to operate its feed mill business at Navenby, Lincolnshire.
We advised Lloyds TSB Development Capital [LDC] on the £17m MBO of Yorkshire- based Cranswick Pet & Aquatics from listed food producer Cranswick plc. The business consists of 2 trading divisions:
Cranswick Pet Products has a history going back to 1789 and is now the UK’s leading manufacturer and distributor of wild bird foods products and accessories, with a strong portfolio of brands including Nature’s Feast, Bucktons and Cheeky Boy.
Tropical Marine Centre is Europe’s leading supplier of quality ornamental marine fish and invertebrates and the UK’s largest supplier of aquatic accessories and fish food.
The Freeth Cartwright team was led by corporate partner John Heaphy and corporate partner and head of private equity Lee Clifford.
John Garner, investment director at LDC, said: “Despite the incredibly difficult and unstable economy, the management at Cranswick Pet and Aquatics has produced a consistently strong financial performance across both areas of its business. We have backed a first rate team who have built a market-leading business which is exceptionally well-placed for future growth.”
Freeth Cartwright partner John Heaphy added: “It is encouraging in these tough times to see private equity houses such as LDC continuing to invest in resilientand profitable businesses, giving management the opportunity to take a stake in their future and become
masters of their own destiny.”
We acted for Tony Barrowcliffe when he re-invested in the catering division of Barrowcliffe Limited at the end of last year. Barrowcliffe Ltd are specialists in the supply of fresh produce, supplying many of the leading food manufacturers.
The Freeth Cartwright team, led by Partner David Tillcock, were no strangers to the company having acted for Mr Barrowcliffe in connection with the business on several previous transactions since 1998.
David Tillcock commented, “Our knowledge, both of the sector and of the business from our previous involvement, was definitely an advantage in successfully concluding this deal.”
The catering division is now trading as Millside Barrowcliffe Limited in Nottingham.
Karl Jansen
DD: 0845 634 9780
karl.jansen@freethcartwright.co.uk
Cumberland Court
80 Mount Street
Nottingham NG1 6HH
Mike Copestake
DD: 0845 634 9791
mike.copestake@freethcartwright.co.uk
Cardinal Square
2nd Floor, West Point
10 Nottingham Road
Derby DE1 3QT
Mukesh Patel
DD: 0116 248 1138
mukesh.patel@freethcartwright.co.uk
One Colton Square
Leicester
LE1 1QH
Lee Clifford
DD: 0845 634 2586
lee.clifford@freethcartwright.co.uk
3rd Floor
75 Colmore Row
Birmingham
B3 2AP
Jon Close
DD: 0845 274 6840
jonathon.close@freethcartwright.co.uk
Third Floor
St James’ Building
61-95 Oxford Street
Manchester
M1 6FQ