Best bits: Premier deal to give Hain Celestial platform for UK growth
By Dean Best | 29 August 2012
Hain believes acquisition of brands like Hartley's can act as platform for US products
Hain Celestial, the US food group, has made another acquisition in the UK. It believes the purchase of ambient brands from Premier Foods will help it grow in the market and provide a way to take US products into the UK. Analysts broadly welcomed the deal, even if there was a note of concern about the quality of assets Hain Celestial is taking on.
The change in the UK operations of US food group Hain Celestial is, as one Wall Street analyst put it last week, like the difference between night and day.
Hain Celestial found its first five years in the UK something of a challenge. It made a profit in the first 12 months but then saw successive years of losses. Some companies would, perhaps, have thrown in the towel but Hain Celestial's management persevered and, in the last ten months, the company has made two acquisitions that have marked it out as a serious player in the UK.
Last autumn, Hain Celestial acquired UK chilled foods firm Daniels Group, a company that owned brands including New Covent Garden Soup Co. Last week, however, the company, through its new UK arm Hain Daniels, struck again, swooping to agree a deal for a clutch of brands owned by Premier Foods plc.
Hain Celestial struck a GBP200m cash-and-shares deal to acquire brands including Hartley's jam, Sun-Pat peanut butter and Gale's honey.
Premier, which is looking to sell assets to cut its debt and focus on fewer brands, has long deemed the assets as no longer central to its future.
Rob Burnett, Hain Daniels' chief executive, said the Premier brands the company will acquire have been "starved of investment for a number of years". However, he argued they can prosper under new ownership. "The business has real category scale in spreads and desserts, which can be further strengthened with a focused resourced and dedicated team," he said.
That said, Hain Celestial sees potential not just in the brands it will acquire but also in the platform it could provide it for further growth in the UK.
"Our announcement today of the acquisition of market leading grocery brands from Premier really establishes Hain Daniels business in the UK as a scale player across all sectors fresh, chilled, frozen and now ambient grocery," Burnett said. He claimed, for instance, that the addition of the Premier assets would make Hain Celestial "the number one branded provider of fruit and veggie solutions" in the UK.
However, significantly, the company will look to use its expanded business to enter new categories and launch US brands into the UK. "How I can see this playing out is they get a foothold in the store and leverage what brands they have," BMO Capital Markets analyst Amit Sharma told just-food last week.
Burnett said the "well respected" Hartley's brand could be a "great opportunity for a master brand in many different fruit and snack categories". Simon argued the brand could be used as Hain Celestial's baby food brand in the UK, co-branded with US line Earth's Best.
However, while these seem just ideas at the moment, Hain Celestial has also given a tangible indication of how the Premier deal will provide a platform for growth. Burnett revealed the company will launch its US Greek yoghurt brand Greek Gods in the UK later this year.
Broadly speaking, Wall Street welcomed Hain Celestial's latest UK acquisition. However, a note of concern came from RBC Capital Markets analyst Ed Aaron. In a note to clients, Aaron said the "strategic rationale" of the deal "makes sense" but he added "valuation implications are unclear".
He wrote: "Fundamentally, this acquisition gives Hain an ambient foods platform in the UK that provides access to larger UK retailers and can help the company leverage its existing brands. At the same time, the transaction could bring modest multiple dilution, as it may be unrealistic to expect the incremental EBITDA from this transaction to be valued in line with domestic natural/organic food assets."
Speaking to management after the deal was announced, Aaron said Hain Celestial was buying Premier assets at a multiple that was half the level at which the US company was trading and asked about the quality of the assets the company was acquiring. Hain Celestial agreed to buy the Premier brands at an EBITDA multiple of 5.2x.
"One of the concerns that I sometimes I hear is, that maybe you kind of get what you paid for and there is some pushback about whether the quality of the assets that you are maybe buying in UK is as good as what people have come to expect from good natural and organic asset in the US?," Aaron asked.
Simon acknowledged the Premier assets "really need some spending" but insisted the company was acquiring "strong brands".
He said: "I think we bought an asset at great value and great categories, and it's not like we brought a brand where if something happened with Hartley's that's your only egg in the basket. If we were here just to buy for the sake of buying it, that's one thing, but if we are here to buy it, modernise it and help take our old UK business to a whole new level, I think that's where that's unique and exciting for us."
When Hain Celestial acquired the Daniels business, the company was similarly upbeat about the new addition's prospects. However, the biggest brand that came as part of the deal, New Covent Garden soup, had been through a year of falling sales.
Reporting its fourth-quarter results on the same day as announcing the Premier deal, Hain Celestial said New Covent Garden sales had increased 20% in the quarter. However, it reduced the earn out on the Daniels deal.
Aaron suggested the reduction meant the Daniels business had not met certain targets but he said the sellers, Singapore foodservice group SATS, could have set steep targets.
"The reversed accrual for the Daniels earn-out means that the business did not meet certain targets that needed to happen for the sellers to get paid that money. The question is how aggressive were those earn-out targets. It might have been that the sellers committed to very aggressive targets, which would not imply a problem with the business," he told just-food. "I don't think this particular issue has a direct bearing on the quality of the Premier assets."
Hain CFO Ira Lamel insisted the Daniels business had performed "very well". He said: "It's not that it hasn't gone well. It's gone very well, but the earn out was based upon the plan that was presented to us by the seller sets."
At BMO, Sharma says if the Premier brands do need working on, then Hain Celestial's management has the capability to improve them. "They seem very bullish about how they are going to build brands. If the brand has resonance with consumers, these guys are smart enough to find out what the trends are."
Last year, when Hain Celestial announced the Daniels deal, Simon said the company had realised it had to grow to succeed in the UK. "You're kind of fish or fowl there, you're not important to the retailers," he said. "My philosophy was you either sell and get out or you get bigger."
In under a year, Hain Celestial looks to have established itself as a significant supplier to UK retailers.
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Best bits: Premier deal to give Hain Celestial platform for UK growth