Comment: United Biscuits sale unlikely in the near-term
United Biscuits has launched ad push for McVitie's in UK
Much media attention has focused on whether the private-equity owners of United Biscuits are preparing to sell off the UK biscuit maker. However, Katy Askew suggests, a sale is unlikely to be on the agenda in the near term.
Recent months have seen reports Blackstone and PAI Partners are preparing to either sell UK-based biscuit maker United Biscuits or launch an initial public offering.
In fact, rumours of a possible sale of United Biscuits have circulated periodically since Blackstone and PAI failed to sell what was then a larger business as a going concern in 2010. In 2012, the private-equity investors split United Biscuits into two units - salty snacks and sweet biscuits. The salty snacks business was then sold to Germany's Intersnack.
According to Glenboden M&A advisor Stefan Kirk, a number of factors could prompt Blackstone and PAI to consider selling now.
There is, Kirk suggested earlier this month, decent appetite for M&A in the UK biscuit and snack sector sector. "In 2013, take the Burton's, Dr Gerard and Tyrrells transactions. In each case, there was reportedly significant buyer interest and a successful competitive tender process. So the timing is clearly good for selling snacks assets, in terms of investor interest," he argues.
In addition, Kirk emphasised it is "arguably unwise to delay the sale" of a biscuits business because the sector is subject to growing private-label competition. "One can generally expect brand value in biscuits to decline in future," he argued.
However, sources close to the situation have repeatedly insisted the group's private-equity owners have no "imminent plans" to sell United Biscuits.
Why are they likely to hold onto the biscuit business? Because they believe United Biscuits can - and will - improve its performance in the mid-term and therefore command a higher valuation when they do decide to sell the company on.
Certainly, United Biscuits has gone on the offensive in the early weeks of 2014. The company is ramping up its investment in marketing, production and international expansion.
Earlier this week the group launched a "master brands" strategy that will see it bring most of its divergent sweet and savoury biscuit businesses under two umbrella brands - McVitie's and Jacobs. In the UK, its largest market, United Biscuits has launched a GBP12m (US$19.6m) advertising campaign for McVitie's and the group plans to similarly increase its investment in Jacob's marketing later this year.
As just-food heard in its recent interview with United Biscuits' UK managing director Jon Eggleton, the group believes that, over the next three years, it will grow its UK business ahead of the market - which it expects to expand by 2-3%.
The company is targeting a 30% market share in UK sweet and savoury biscuits, a market that generates US$4bn in annual sales. At the same time, investments in production capacity and packing facilities will result in some cost savings, helping to boost margins.
The group also plans to increase international sales by 20% over the next three years. The company sells biscuits in over 100 countries and international sales have tripped since 2006.
Addressing a media briefing last week, Jeff van der Eems, head of United Biscuits' international business, said the group is "accelerating" international sales by strengthening partnerships worldwide and expanding the range on offer internationally. It has established local manufacturing in markets such as Saudi Arabia and India and plans to further extend this strategy.
While United Biscuits is offering its well-known brands, it is also developing ranges specifically for emerging markets that are "affordable" and fortified, van der Eems said.
United Biscuits' management has clearly established a three-year strategy to grow the business at home and abroad. And - as long as the group delivers on its ambitions - it would seem wise for Blackstone and PAI to hang onto an asset that could command a higher valuation based on what could potentially become a significantly improved performance.
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