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clearthought Consumer insights from Clearwater November 2013 The branded food M&A space is alive and well, with high levels of activity and strong interest from both strategic buyers and private equity players despite the weak consumer environment. This is evident at the top end of the market, with the acquisition of classic brands such as Heinz by Warren Buffett’s Berkshire Hathaway and 3G Capital, but there is also much activity among smaller challenger brands - often focusing on faster growing categories (e.g. snacks and baby food) or offering growth opportunities in emerging markets. Fuelling Growth Global appetite for old favourites as well as challenger brands in fast-growing categories Introduction There will always be interest in upcoming challenger brands, especially those in faster growing categories. To combat these challenger brands, larger and more traditional groups are creating specific structures to place more focus on these higher growth sectors, for example, Nestlé Health Science unit and Hain Celestial’s new infant nutrition business. In addition, as companies rebalance portfolios, we expect to see continuing interest in strong, traditional brands in stable markets such as the UK and the US. These brands offer the opportunity for development in new geographic markets but also generate strong cash flow in their more established markets, especially as the US and UK economies slowly recover. M&A Outlook Transactions in the food space have reflected some key themes: n Continuing attraction of traditional brands - the recent acquisition of Burton’s Biscuits and Whitworths, but also the sale of brands such as Sarsons, Branston, Gale’s and SunPat by Premier Foods, has driven high levels of M&A activity and demonstrated the attractiveness of traditional British brands to overseas buyers; n Increasing exposure to faster growing categories and challenger brands - corporates have sought to re-position their portfolios and gain expertise in growth categories such as health, infant and snacks, often at the premium end with brands such as Tyrrells and Plum; n Emerging market opportunities - there is plenty of scope to roll out strong brands internationally, especially in markets such as China where consumers seek the reassurance of trusted names.
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clearthoughtConsumer insights from Clearwater November 2013
The branded food M&A space is alive and well, with highlevels of activity and strong interest from both strategicbuyers and private equity players despite the weakconsumer environment. This is evident at the top end ofthe market, with the acquisition of classic brands such asHeinz by Warren Buffett’s Berkshire Hathaway and 3GCapital, but there is also much activity among smallerchallenger brands - often focusing on faster growingcategories (e.g. snacks and baby food) or offering growthopportunities in emerging markets.
Fuelling Growth Global appetite for old favourites as well as challenger brands in fast-growing categories
Introduction
There will always be interest in upcoming challengerbrands, especially those in faster growing categories. To combat these challenger brands, larger and moretraditional groups are creating specific structures to placemore focus on these higher growth sectors, for example,Nestlé Health Science unit and Hain Celestial’s new infantnutrition business.
In addition, as companies rebalance portfolios, we expectto see continuing interest in strong, traditional brands instable markets such as the UK and the US. These brandsoffer the opportunity for development in new geographicmarkets but also generate strong cash flow in their moreestablished markets, especially as the US and UKeconomies slowly recover.
M&A Outlook
Transactions in the foodspace have reflected somekey themes:
n Continuing attraction of traditionalbrands - the recent acquisition ofBurton’s Biscuits and Whitworths, butalso the sale of brands such as Sarsons,Branston, Gale’s and SunPat by PremierFoods, has driven high levels of M&Aactivity and demonstrated theattractiveness of traditional Britishbrands to overseas buyers;
n Increasing exposure to fastergrowing categories and challengerbrands - corporates have sought tore-position their portfolios and gainexpertise in growth categories suchas health, infant and snacks, oftenat the premium end with brandssuch as Tyrrells and Plum;
n Emerging market opportunities -there is plenty of scope to roll outstrong brands internationally,especially in markets such as Chinawhere consumers seek thereassurance of trusted names.
Consumer insights from Clearwater
Looking at the global picture for deals inthe food sector, the most noteworthymust surely be the acquisition of Heinz,announced early in 2013. Heinz ranks asone of the best known food brands in theworld (number 46 brand in the world in2012 across all product categories,according to Interbrand). This wasreflected in the US $28 billion price paid(including debt) by Warren Buffett’sBerkshire Hathaway and 3G CapitalManagement (who acquired Burger King in 2010) for the company, to make thelargest deal in the food industry’s history.
The transaction valued the company at20% above its all time equity value highand represented a 14x EBITDA. Whilethere is no doubt scope to achieve furthergrowth with the brand in emergingmarkets and strip out costs, the deal isalso predicated on achieving stable growthin developed markets as westerneconomies, led by the US, start to recover.
A similar story can be seen in the UK,where a major contributor to M&Aactivity in the UK branded food spaceover the past couple of years has beenthe ongoing disposal of assets by Premier
Foods, Britain’s largest branded foodproducer. As part of its efforts to reducedebt levels and renegotiate its bankingfacilities, the company has decided tofocus on eight key brands - Hovis, MrKipling, Ambrosia, Sharwood’s, LloydGrossman, Bisto, OXO and Batchelors.Meanwhile, it has acted to deleverage thebusiness via asset sales outside thesecore brands. This has led to opportunitiesfor a number of overseas trade buyers tolay their hands on some very traditionalBritish brands such as Hartley’s Jam andSarson’s malt vinegar.
Continuing Attraction of Traditional Brands
Deal Analysis
clearthought | November 2013
Premier Foods Disposals 2011-2013
Branston Pickle was first produced in 1922and is named after the small village where itwas made. Sarson’s started brewing maltvinegar 200 years ago. By acquiring these two businesses in separate transactions,Mizkan Foods of Japan has acquired twoquintessential British brands. Mizkan hasalready expanded in the US, with theacquisition of vinegar business AmericanIndustry in 1981, and these more recentacquisitions now give the company adominant position in the UK pickles andvinegars business.
Meanwhile Premier’s spreads business,including Hartley’s Jam and Gale’s honey,was acquired by another overseas tradebuyer - Hain Celestial of the US.Demonstrating the attractiveness oflarge, mature but stable markets as theeconomy starts to show signs of
recovery, the company wanted to enlargeits position in the UK market. Hain’sacquisition of Premier’s spreads businesswas followed this year by the purchase ofpremium organic baby food companyElla’s Kitchen. Following the acquisition,Hain Celestial will set up a new infantnutrition business combining Ella’s Kitchenand their own existing Earth’s Best rangeof infant, toddler and children’s products.They plan to grow the Ella’s Kitchen brandby leveraging distribution channels inEurope and the US, but also by expandinginto new product areas in feeding andpersonal care.
This Summer, Equistone acquired amajority stake in 127-year-old dried fruit,seed and nut company Whitworths, in atertiary deal which values the company at£90 million - illustrating that private
equity as well as trade buyers areattracted by the potential for furtherdevelopment of traditional brands.Whitworths is estimated to have a marketshare of around 30% in a category whichhas been growing rapidly on the back ofinterest in both healthy eating and homebaking. The investment will be used,amongst other things, to support newproduct development and provide scopefor the acquisition of complementarybusinesses.
Most recently, Burton’s Biscuits has beenacquired by Ontario Teachers’ PensionPlan. Burton’s is the UK’s second biggestbiscuit maker, producing Wagon Wheels,Maryland Cookies and Jammie Dodgers.The company can trace its roots back to1935. During the process, the companymet with over 30 potential buyers.
Completion Date
February 2013
October 2012
July 2012
July 2012
December 2012
August 2011
March 2011
Company Sold
Sweet Pickles & TableSauces Businesses e.g.Branston Pickles
Spreads Business e.g.Hartley’s jam and Gales honey
Vinegar & Sour PicklesBusiness e.g. Sarson
Elephant Atta Ethnic Flour
Brookes Avana Chilled Food
Canning Business
Quorn & Cauldron Meat-free Foods
Acquiror
Mizkan Group
Hain Celestial Group
Mizkan Group
West Mill Foods Limited
2 Sisters
Princes Food
Intermediate Capital Group
Deal Value
(£m)
93
200
41
34
30
182
230
EBITDA
multiple
7.9x
5.2x
6.6x
5.3x
n.a.
5.7x
11.2x
clearthought | November 2013 Consumer insights from Clearwater
Consumer insights from Clearwater
Increasing Exposure to Fast Growing Sub-Sectors
clearthought | November 2013
A good example of the opportunities onoffer in faster growth categories isCampbell Soup’s announcement in Maythat it was acquiring Plum Organics. This came hot on the heels of the mergerof the two previously unrelated Plum babybusinesses - Plum UK was founded as apremium organic baby food company in2006 by Savoy trained chef and motherSusie Willis, and was acquired by Darwinprivate equity for £10 million in 2010. Inearly 2013 Plum UK was acquired by fast-growing, US-based Plum Organics, foundedby a former Clif Bar (US nutritious food anddrink company) executive and an industrialdesigner in 2008. The acquisition supportsPlum Organics’ intention to launch anambitious international expansion plan.
Over the period 2011-2016, the babyfood market is expected to achieve anaverage annual growth rate of 6% globallywhile the overall food market is expectedto grow by only 2% according toEuromonitor. It is predicted that the globalbaby food market will largely be driven bythe Asia Pacific region, especially China.The latest acquisition of the Plumbusinesses gives Campbell exposure to thefast-growing premium baby food sector aswell as an effective route into newmarkets. Campbell’s move into baby foodcomes after its acquisition of BolthouseFarms for around US $1.55 billion tobolster its juice businesses. The deal wasthe largest in Campbell’s history and willallow the soup company to increase its
exposure to beverages - as soup saleshave slowed, the company has looked toincrease its health offerings, centred onthe V8 line of vegetable drinks.
Health is another area which is provinghighly attractive for mainstream foodcompanies, due to its high growthreflecting ageing demographics in maturemarkets and increasing focus on healthyeating. Mirroring this trend, Nestlé HealthScience was established in January 2011in order for Nestlé to develop nutritionproducts for conditions such as diabetes,obesity and Alzheimer’s, with a numberof acquisitions having been made. Earlier inthe year, the division acquired US-basedPamlab, which produces a range of foodsfor use under medical supervision forpatients with “mild cognitive impairment,depression and diabetic peripheralneuropathy”.
Meanwhile, often less healthy but also fast-growing is the market for snacks andconvenience foods. The growth open tonew players in this category has beendemonstrated by two brands of crisps.Burts Crisps started as a small artisan brand,originally launched by Richard and LindaBurt in 1997, and was sold to the Londondistributor of premium foods Empire FoodBrokers in 2012 for £20 million. By thetime of the sale, the company wasexporting to 30 countries. Likewisepremium crisps brand Tyrrells, founded byWilliam Chase in 2002 from a potatotrading business, was acquired by LangholmCapital for almost £40 million in 2008.Since then it has expanded into marketssuch as India and China and has recentlybeen sold to Bahrain-based investmentgroup Investcorp for £100 million.
This year, gelatine-free sweets companyGoody Good Stuff was acquired bySwedish confectionery business Cloetta.Cloetta was founded in 1862 and owns alarge range of brands, including Chewits.Cloetta was attracted by the “growingsegment of natural candy”. We continue toexpect large international food groups toacquire branded businesses, particularlywhere the target business has developedhigh growth brands through adifferentiated product.
clearthought | November 2013 Consumer insights from Clearwater
Taking Brands to Emerging Markets
ConclusionWe expect to see continuing activity andhigh levels of interest from both trade(cross-border as well as domestic buyers)and private equity in the branded food spaceover the coming months, as players seek outgrowth opportunities in interestingcategories and markets whilst largecompanies rebalance portfolios.
The highest profile transaction in thiscategory was the acquisition of Weetabix byBright Food of China last year. Bright Food,one of China’s largest food groups, bought a60% stake from Lion Capital. The deal, thelargest done by a Chinese food and drinkscompany, valued Weetabix at around £1.2billion and includes other cereal brands suchas Ready Brek and Alpen. Bright Food plans
to sell the products intoChina and the rest ofAsia, using existingdistribution channels aswell as its own shops,and believes there is ahuge market forwestern cereal brandsas breakfast habits arechanging.
Meanwhile Kerry Group,a supplier to the foodsindustry, has also beenbolstering its position inemerging markets. At the start of the year,the company confirmedit had completed the
acquisition of the South African-based sweetingredients supplier Orley Foods for anundisclosed sum. The company has a 50 yearhistory of providing sweet ingredients for theconfectionery, ice cream, beverage, cereal,dairy and bakery markets. The transactioncomes a year after Kerry’s acquisition ofFlavourCraft, also in South Africa.
These acquisitions will provide a springboardfor expansion into other growing sub-Saharan countries and allow the company topartner leading food and beverage brands asthey target growth in emerging markets.
International expansion was also behind PAIPartners’ acquisition this year of R&R IceCream, the largest European private label icecream manufacturer, for an estimated £717million from Oaktree Capital. R&R makesown-label ice cream for a range of retailers,including Tesco and Carrefour, and forbranded manufacturers such as Nestlé.
The backers said they would support R&R’snext phase of growth and plan to invest inthe company’s international expansion.Founded in 1985 as Richmond Ice Cream,R&R has grown via a number ofacquisitions. In 2006, the company mergedwith German ice cream manufacturerRoncadin GmbH to form R&R Ice Creamand has also acquired Rolland and Pilpa inFrance, Durigon in Germany and Eskigel, anItalian own-label ice cream manufacturer.Earlier this year, the purchase of YooMoofrozen yoghurt was also completed.
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