Comment: Quorn sale unlikely to be last Premier Foods disposal
Analysts expect further disposals after the announcement of its Quorn business today
The UK's largest food maker has sold the business to Exponent Private Equity for GBP205m (US$328m) - a move the firm said is part of a financial strategy to pay down debt, which for the six months until 26 June, stood at GBP1.37bn.
Reports that Premier had received interest in its meat-free business surfaced in October last year. The firm said it had received bids from "a number of parties, including multinational food groups and private-equity firms", and last month, the Hovis and Mr Kipling maker, revealed it was in "advanced" talks with two potential suitors.
After the months of speculation, however, Exponent, the company behind furniture maker Dreams and thetrainline.com has emerged triumphant. Shore Capital analyst Clive Black told just-food that the price paid for the business was "reasonable given where the market is at the moment".
Investec analyst Martin Deboo echoed these sentiments. "As I understand it, it is [being sold at] 10.6 times EBITDA. That is a good price," Deboo told just-food. "Premier bought this business in 2006 for ten times EBITDA, and I thought they might only get eight times."
But, while this morning's announcement has put paid to the ongoing speculation over the business, the fact that it was sold to a private-equity firm rather than a trade buyer has garnered mixed reactions.
"It is interesting that it's a financial buyer and not a trade buyer," Black told just-food. "In that respect, the trade clearly baulked at the potential exit multiple that Premier was looking at. It's a weakness rather than anything else that they're selling their family jewels, but that's where Premier is with the magnitude of its leverage and its pension liabilities."
The question now will be whether any further disposals from the UK's largest food maker are likely, given that the company remains under pressure to reduce debt - a legacy of acquisitions in 2006 and 2007 and the commodity price hike of 2008.
In November, the firm received approaches for its East Anglian canning operations, and analysts now believe it is only a matter of time before other sales are reported.
"[The sale] is a firm step in the right direction.... but they need to do more," Deboo said. "Obviously there has been rumours on the canning business being sold but we haven't heard any more about that. They could possibly look to dispose of their two own label businesses - I think they won't want to stop here but it's a step in the right direction."
Black told just-food that he believes "the whole business is for sale".
"[Premier] said they are in negotiations on the canning side. I would be very surprised if they were to announce they were selling Hovis, but effectively the whole business is for sale at the right price for them," Black said.
For Premier, the sale of its meat-free business will allow it to "focus more resources and management time" on its grocery and Hovis businesses.
The deal, the firm says, represents "another step along the road" to achieving a capital structure which it believes will be more attractive to investors.
Whether this really is enough to allay investors' concerns is questionable, but if analysts are correct, we should probably brace ourselves for some further announcements from Premier this year.
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